Green Industrialization, Productive Transformation, and Economic Sovereignty

The climate transition is not only an environmental challenge. It is redefining the foundations of international competitiveness, reorganizing global value chains, and placing industrial policy at the center of development strategies. For developing countries, the central question is no longer whether decarbonization will occur, but what position they will occupy in the green economy emerging from this process.

The new wave of green industrial policies in advanced economies presents significant opportunities, but also important risks. Low- and middle-income nations have a rare window in the climate transition to structurally transform their economies, generate skilled jobs, and reduce inequalities. At the same time, policies adopted by rich countries, especially those associated with domestic subsidies, local content requirements, and stringent environmental standards, may deepen existing asymmetries between the Global North and South.

Because developing countries face deep inequalities in financing conditions, technological capabilities, international trade rules, and State capacity for industrial policy, many risk being pushed into subordinate positions in the new international division of labor, serving mainly as input suppliers for technologies developed in advanced economies. This risk is particularly significant as industrial policy returns to the global economic agenda (Juhász, Lane & Rodrik 2024; Mazzucato 2021).

The imbalance is already visible. China, the United States, and the European Union concentrate production of high-value-added green technologies, while most developing countries remain restricted to exporting low-value green commodities, mainly critical minerals, reproducing the old division between raw material suppliers and innovation holders. Data from the World Intellectual Property Organization show the depth of these disparities. Between 2000 and 2024, the ten largest economies accounted for almost 90% of international patent applications in solar and wind energy. Brazil, despite its sixth-place ranking in installed wind capacity worldwide, accounted for only 0.4% of global wind patents and 0.19% of solar patents.

There is also a second risk, less discussed and potentially more difficult to manage. Even the strategy of specializing in critical minerals, often presented as a natural opportunity for the Global South, may prove perilous. The rapid technological evolution in sectors associated with the energy transition suggests that comparative advantages based exclusively on natural resources are more fragile than usually assumed.

Technological change in the battery sector, for example, has rapidly eroded the supposed comparative advantage of countries rich in lithium, cobalt, and nickel. Lithium iron phosphate (LFP) batteries, which do not use nickel or cobalt, already account for a growing share of the global electric vehicle market due to their lower cost and greater thermal resistance. Even more radical is the advancement of sodium batteries, which do not use lithium or cobalt and may significantly alter the demand profile for minerals currently considered strategic. The transformations observed in the battery industry illustrate a broader point: the economic geography of the green transition will be determined less by the location of natural resources and more by the capacity for innovation, manufacturing, and technological adaptation (IEA 2024; 2025). The lasting value lies in the technological and productive capacity built internally, not in the availability of natural resources.

In this context, the clean technology race is altering the meaning of a just climate transition. It is no longer sufficient to find mechanisms to compensate the losers of the transition. The success of some countries in mastering decarbonization technologies highlights the need to move beyond cost-compensation mechanisms and consider the sharing of benefits.

In other words, it is no longer enough for rich countries to offer financial aid or promote mechanisms for mobilizing private capital for a climate transition that, in the Global South, means, at best, exporting critical minerals and importing German, Chinese, or American technologies. Developing countries also want to seize the opportunity offered by the climate transition to transform their productive structures and find more favorable positions in global value chains.

BRAZIL AND THE OPPORTUNITY FOR GREEN PRODUCTIVE TRANSFORMATION

In this context, Brazil is relatively well positioned to seize the opportunities created by green industrialization. Although it faces fiscal, technological, and institutional constraints similar to those of other developing countries, Brazil combines energy advantages, remaining industrial capacity, development finance institutions, and a domestic market large enough to support a climate-driven strategy of productive transformation.

A mapping by the Net Zero Industrial Policy Lab at Johns Hopkins University helped make these advantages more concrete by identifying seven green industrial sectors in which Brazil already starts from real, not just potential, competitive positions (Guerra et al. 2025). 

In critical minerals, the study points to the processing of graphite and manganese–key inputs for battery cathodes–as particularly accessible value-added opportunities that require technical knowledge the country already possesses. In sustainable aviation fuels, the route of sugarcane ethanol converted into kerosene (alcohol-to-jet) gives Brazil a carbon intensity about one-third that of corn ethanol and less than half that of routes based on palm, soy, or canola oil. This advantage tends to translate into higher prices, as regulated markets in Europe and China reward fuels based on the amount of carbon avoided per unit. 

In low-carbon steel, the combination of abundant iron ore, clean and cheap electricity, and installed industrial capacity positions the country as a low-cost producer. In the automotive sector, the combination of Brazil's ethanol tradition and electrification creates a distinct advantage for flex-fuel hybrid vehicles (battery-plus-ethanol), whose potential market in the country exceeds that of purely electric vehicles. The study also identifies opportunities in wind turbines, where manufacturers such as WEG have already broken free from import dependence on practically all components, with only gearboxes remaining; and in green fertilizers, a particularly relevant case because Brazil is the world's largest importer of fertilizers, and replacing gray hydrogen with green hydrogen in ammonia production would simultaneously reduce import costs and the sector's carbon intensity.

The political economy of the climate transition in Brazil is far from trivial, given the strong economic and fiscal dependence on the oil sector and the importance of agribusiness in the export agenda. Traditionally, the existence of short-term trade-offs between climate and development has hindered the adoption of more ambitious decarbonization agendas. The new international context, however, is bringing climate objectives, energy sovereignty, economic security, and productive diversification closer together.

Latin America had already learned the fragility of advantages based on natural resources during the commodities supercycle of the 2000s. The progressive governments of that period used the expansion of external revenues to increase income transfers, strengthen social policies, and expand infrastructure investments. The results were significant for economic growth and poverty reduction. However, when the commodities cycle lost momentum, external vulnerability, deteriorating fiscal accounts, and economic slowdown re-emerged.

In other words, the commodities cycle allowed for inclusive growth, but did not produce sufficient structural transformation to reduce the region's dependence on international markets. The understanding that growth based exclusively on natural resources hardly generates long-term economic resilience helped create the conditions for the adoption of sustainable development agendas across different Ministries during President Lula's third term (e.g., New Industry Brazil, New PAC, Ecological Transformation Plan, Climate Plan).

This understanding has been reinforced by the new global geopolitical context, marked by high volatility and a growing pursuit of economic sovereignty. Recent shocks in the energy and fertilizer markets have shown that economic resilience does not simply stem from being an exporter or importer of natural resources, but from the ability to diversify productive structures and energy matrices.

Spain, for example, has significantly reduced its dependence on natural gas-based thermal power generation by expanding its wind and solar capacity. Brazil has mitigated some of the energy shocks through a different path, supported by the widespread use of biofuels and a flexible vehicle fleet. In other words, resilience in the face of geopolitical shocks does not stem from a country's position in the energy trade balance, but from structural choices related to energy and productive diversification. The pursuit of economic sovereignty in an increasingly unstable international context has created an unprecedented convergence between development and climate objectives.

While rising geopolitical volatility strengthens external incentives for productive diversification, recent dynamics in the Brazilian labor market create equally relevant domestic incentives. The issue is not only about reducing external vulnerabilities, but also about building a productive structure capable of absorbing an increasingly qualified workforce.

SKILLED EMPLOYMENT AND GREEN INDUSTRIALIZATION

Over the past two decades, Brazil has produced a generation far more educated than its productive structure could absorb. Microdata from the Brazilian Institute of Geography and Statistics (IBGE)’s National Household Sample Survey (PNAD) and the Ministry of Labor and Employment's Annual Social Information Report (RAIS) show significant growth in the phenomenon of over-education, that is, the situation in which workers possess higher levels of education than are required for the occupations they perform. The expansion of higher education, driven by the Program University for All (ProUni), Student Financing (FIES), and quota policies, represented one of the main social advances of the period. However, the implicit promise of social mobility associated with a university degree becomes difficult to sustain when the economy does not create jobs compatible with the acquired qualifications.

Productive diversification is one of the main answers to this challenge. Alongside the consumption tax reform approved during Lula's third term, green industrialization can help expand the demand for knowledge- and technology-intensive jobs.

Green jobs now account for approximately 16% of total employment in the country. In addition to higher average education levels, these jobs also have greater formalization and higher-than-average incomes. However, many green sectors exhibit a low degree of domestic production linkage. While sectors classified as brown have high employment multipliers across the production chain, a large share of green activities still operate in relatively isolated ways and depend on imported inputs. The main exception is the automotive industry, which is associated with electrification. In this case, the multiplier effects exceed those observed in most traditional sectors, due to the wide variety of inputs and services mobilized (Costa, Pero & Gesteira 2026).

These results suggest that not all green activities have the same transformative potential. In terms of development, the central issue is not only how many jobs an activity directly generates, but its capacity to mobilize suppliers, disseminate technology, and stimulate complementary investments. A green industrial policy geared towards structural transformation should prioritize precisely those segments capable of combining decarbonization with increased production density while creating high-quality jobs.

GOVERNANCE, COORDINATION AND STRATEGIC FOCUS

The New Industry Brazil represents an important turning point in the recent trajectory of Brazilian industrial policy. By incorporating objectives related to energy transition, technological innovation, health, and digitalization, the strategy brings the country closer to new international experiences in industrial policy, characterized by the simultaneous articulation of multiple instruments and multiple objectives.

Reactivating the National Council for Industrial Development was also an important step in rebuilding institutional spaces for coordination among government, business, and labor. Still, the main challenge today appears to be less the absence of instruments than the difficulty of coordinating them. As the productive transformation agenda becomes more complex, a permanent coordination body linked to the Presidency or its Chief of Staff could help align credit, public procurement, regulation, innovation, and professional training around shared objectives.

Furthermore, as argued in the World Bank's Industrial Policy for Development report, successful industrial policies depend on strategic focus, institutional coordination, and clear evaluation mechanisms. One of the study's most important conclusions is that countries pursuing an excessive number of objectives and target sectors tend to disperse resources, hinder institutional learning, and compromise the effectiveness of public policies (Fernandes & Reed 2026). The diagnosis of the Johns Hopkins Net Zero Industrial Policy Lab on the New Industry Brazil points in the same direction: the orientation towards broad missions diluted approximately US$ 60 billion in resources among too many priorities to guarantee progress in highly competitive verticals, and there is a lack of clear mechanisms for collaboration between government, companies, workers, and academia to sustain sector-by-sector technological learning (Guerra et al. 2025).

From this perspective, Brazilian industrial policy could benefit from a portfolio approach that combines low-, medium-, and high-risk activities. Low-risk activities are those with consolidated demand, based on already established comparative advantages (e.g., bio-inputs and ethanol). They should be supported primarily by instruments such as public research and development–the Brazilian Agricultural Research Corporation (Embrapa), for example–, certification and traceability infrastructure–the National Institute of Metrology, Quality and Technology (Inmetro)–, and trade promotion–the Brazilian Trade and Investment Promotion Agency (APEX-Brasil). Medium-risk sectors involve technological adjacencies with expanding markets, in which the country already possesses partial capabilities but faces coordination failures and a need for scale (e.g., agroforestry systems and critical minerals), through the appropriate use of instruments such as regulatory mandates, long-term credit from the National Bank for Economic and Social Development (BNDES), and innovation subsidies via the Financing Agency for Studies and Projects (Finep). Finally, high-risk sectors are characterized by high technological and market uncertainty and a lack of an established comparative advantage, but have high potential for returns and externalities (e.g., exportable software, advanced aerospace, and audiovisual content). Selective instruments with lower fiscal costs, such as targeted tax incentives, strategic public procurement, and innovation financing, should support them. This portfolio approach allows combining the exploitation of existing capabilities, expansion into new technological frontiers, and experimentation in transformative areas, reducing fiscal and political risks and increasing the probability of success of the industrial strategy.

The objective would be not only to exploit existing comparative advantages, but also to build new productive and technological capabilities in strategic areas. The main implication for the Brazilian case is the need for greater selectivity in the allocation of public resources.

This selectivity, however, requires a territorial information base that is currently scarce in the Brazilian industrial policy debate. The Atlas of Brazil's Industrial Future 2025, launched by the E+ Energy Transition Institute at COP30, offers a concrete instrument in this direction. By cross-referencing data on the availability of clean energy and other infrastructure with the locations of energy-intensive industries, the Atlas identifies regions with the potential to form low-carbon industrial hubs, supporting investment and public policy decisions with a systemic, not just sectoral, understanding of industrial decarbonization (E+ 2025 Institute). A sectoral portfolio such as the one suggested above gains precision when combined with this type of territorial mapping: green industrial policy can prioritize precisely those territories where existing infrastructure, clean energy availability, and installed capacity jointly reduce the cost of coordination between companies, which also tends to create the greatest potential for productive linkage and the generation of qualified jobs.

Another fundamental element is the adoption of conditionalities for companies benefiting from public incentives. As Mazzucato and Rodrik (2023) argue, contemporary industrial policies require explicit mechanisms of reciprocity between public support and private beneficiaries. Subsidies, financing, and tax incentives must be associated with verifiable targets for investment, innovation, job creation, and decarbonization.

The central issue is not the volume of resources mobilized by the State, but its capacity to direct them towards clearly defined objectives. In a context of tight fiscal constraint, the quality of public intervention becomes as important as its scale.

In the field of financing, recent experiences such as BNDES’s Climate Fund suggest promising avenues for raising international resources with partial mitigation of exchange-rate risks. Instruments of this nature can expand the scope for strategic investments without directly putting pressure on the public budget.

Green industrialization represents today the most promising strategy for productive transformation available to Brazil. The opportunity opened up by decarbonization goes far beyond the export of critical minerals, biofuels, or clean energy. It lies in the possibility of using the climate transition to reconfigure Brazil's productive structure. The countries that will lead the green economy will not necessarily be those with the greatest abundance of natural resources, but those capable of transforming these resources into knowledge, innovation, and quality jobs. For Brazil, this may be the most significant development opportunity since the 20th-century industrialization cycle.

References

Costa, Kaio V., Valeria Pero & Pedro Gesteira. 2026. “Green Jobs in Brazil: Measuring Evolution and Patterns between 2014 and 2024”. Decarbonization and Industrial Policy Working Paper 13. Rio de Janeiro: IE-UFRJ. https://dip.ie.ufrj.br/wp-content/uploads/2026/06/DIP-BR_WP13_Green-jobs_full-report-1.pdf.

E+ Energy Transition Institute. 2025. “Atlas of Brazil’s Industrial Future 2025.” E+ Energy Transition Institute/Net Zero Policy Lab at Johns Hopkins University, November 17, 2025. https://emaisenergia.org/publicacao/atlas-do-futuro-industrial-do-brasil-2025/ .

Fernandes, Ana Margarida & Tristan Reed. 2026. “Industrial Policy for Development: Approaches in the 21st Century.” World Bank Group Policy Research Report. https://doi.org/10.1596/978-1-4648-2276-6 .

Guerra, Adriana M., Tim Sahay, Renato H. de Gaspi & Bentley Allan. 2025. “New Industrial Policy for a New World: Seizing Brazil's Opportunities in the Energy Transition.” Net Zero Industrial Policy Lab Geopolitical Brief 3, February 4, 2025. https://www.netzeropolicylab.com/brazil-new-world .

IEA. 2024. “Global Critical Minerals Outlook 2024.” IEA Report, May 17, 2024. https://www.iea.org/reports/global-critical-minerals-outlook-2024.

IEA. 2025. “Global Critical Minerals Outlook 2025.” IEA Report, May 21, 2025. https://www.iea.org/reports/global-critical-minerals-outlook-2025 .

Juhász, Réka, Nathan Lane & Dani Rodrik. 2024. “The New Economics of Industrial Policy.” Annual Review of Economics 16: 213-242. https://doi.org/10.1146/annurev-economics-081023-024638 .

Mazzucato, Mariana & Dani Rodrik. 2026. “Industrial Policy with Conditionalities: A Taxonomy and Sample Cases.” Industrial and Corporate Change. https://doi.org/10.1093/icc/dtaf063 .

Translated from Portuguese by Bruno Zilli with the support of digital machine translation tools: Google Translate (initial draft), Grammarly (grammatical and syntactic revision), and ChatGPT (selective phrasing refinements). Reviewed by the author.

Submitted: August 11, 2026

Accepted for publication: August 25, 2026

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