State-driven Decarbonization and Spatial Reconfiguration of Industries

The signing of the 2015 Paris Agreement, which imposes a 1.5oC limit of global warming target, creates the necessary condition for ratified countries to decarbonize their economies. Wind and solar power for energy generation is widely adopted in European countries. To have a realistic chance to reach the emission cut and achieve the Sustainable Development Goals (SDGs) on climate change (net zero emissions) by 2050, all countries realize the importance of a wider adoption of renewable energy on electricity generation.

At the recently concluded COP26 summit in Glasgow, it is agreed that all countries should accelerate their efforts towards the phasing-down of usage of fossil fuels and inefficient fossil fuel subsidies. During the negotiation processes, 46 countries (but excluding China, India, the US and Australia) have signed a non-binding pledge to decarbonize their economies by phrasing out the use of thermal coal in unabated power generation by 2030 and 2040 for developed and developing countries, respectively. Moreover, 25 countries and development banks pledged to end public finance for new fossil fuel exploration and production overseas by the end of 2022.

Global production network (GPN) is one of analytical frameworks to examine the spatial configuration of industries in economic geography. Inter-firm competition rather than direct state intervention have long been the crucial factor in the strategic coupling of global lead firms: suppliers and contractors in developing countries have to use local endowments to strategically link to lead firms and engage in GPNs (Coe et al., 2008; Yeung, 2016; Hamilton-Hart and Yeung, 2021). The spatial patterns of fossil fuel-depended industries could change under the accelerated drive for decarbonization.

Different from other manufacturing sectors, states have been play a more pro-active role in the drive for decarbonization in developed and developing countries, from the provision of financial incentives to energy suppliers through feed-in tariffs and the tax allowance on the purchase of battery electric vehicles to the direct subsidies on the development of renewable industrial clusters. In addition to energy generation, there are some earlier signs for the changing market demand in the personal transport sector: battery electric vehicles account for a rising share for new passenger vehicle sale in the European market, from over 10% in Germany, France, the UK to over 20% in the Netherlands (and the ratio is as high as 75+% in the first mover Norway).

The rising rivalry between the US (to a less extent the EU) and China highlights the importance of energy security during the accelerated transition to renewable energy in economic and energy policies. The drive for decarbonization could lead to a spatial reconfiguration of manufacturing GPNs, including the changing inter-firm competitive dynamics between developed and developing countries. The race for the establishment of renewable energy industries and the rapid electrification of the transport sector, which accounts for 25% of global greenhouse gas emissions, under the remit of energy security have further ramification on the state industrial policies. For instance, European governments have formed an alliance with global automotive giants for the establishment of electric vehicle battery gigafactories, the mass production of (green) hydrogen, and the development of next-generation batteries.

In addition to the geopolitical tension, the recent severe shortage of semi-conductors underlines the importance of supply chains security in economic policies. This is especially the case when major economies are decarbonizing and this in turn could leading to a scramble for essential scarce raw materials, which in turn could lead to the spatial reconfiguration of mining GPNs, from thermal coal, liquefied petroleum gas and natural gas to lithium, cobalt, nickel, copper, polysilicon, etc.

One of the challenges for the state is to calibrate the pace of adopting renewable energy and establishing the corresponding supporting infrastructures without compromising the energy security and supply chains security on the one hand and yet managing the shock on the (energy-intensive) industries relying on fossil fuels on the other hand.

Existing literature, such as the disarticulation approach (Bair and Werner, 2011) and ‘dark side’ of GPNs (Coe and Hess, 2008; Phelps et al., 2018), is unable to reconcile the (potential) changes in the competitive dynamics of global economy under the accelerated drive for decarbonization. This CFP aims to address the following (inconclusive) issues related to the drive for decarbonization: