Greening free trade: how to coordinate cross-border industrial value chains

Recent geopolitical crises have disrupted supply chains and triggered price shocks across the global economy. The closure of the Strait of Hormuz, for example, has exposed the vulnerabilities associated with concentrated trade routes. Data from the IEA shows around one quarter of global ammonia trade, nearly 40 percent of urea trade and almost 45 percent of methanol trade pass through the Middle East. As a result, disruptions in this critical corridor can quickly escalate into global shortages and price spikes. More broadly, this underscores the importance of diversifying value chains and production pathways by reducing dependence on fossil-based inputs and precursors.

For example, EU methanol prices have suffered sharp swings during the 2008 financial crisis, the Ukraine energy shock and recent Middle East conflicts. This underscores the vulnerability of fossil-based chemical value chains to geopolitical and energy market instability. Ultimately, moving to low-carbon methanol produced with renewable hydrogen can boost resilience by diversifying both production locations and feedstock sources.

Two industrial sectors stand out for international cooperation: low-carbon steel and chemicals. 

In the steel sector, green hydrogen-based direct reduced iron (H₂-DRI) offers a pathway to decarbonise production while unlocking new trade opportunities. Countries like Australia, Brazil and South Africa combine high-quality iron ore resources with abundant renewable energy, making them highly competitive green iron producers. Our 2025 analysis shows that for steel-making countries like Germany, Japan and South Korea, supplementing domestic green iron production with these imports could cut costs by around 15 percent by 2040. Importantly, less energy-intensive downstream activities that generate significant value and employment would remain in importing countries, preserving jobs, know-how and value creation. Exporting countries also stand to benefit substantially: producing 10 million tonnes (Mt) of green iron in Brazil and 3 Mt in South Africa by 2040 could create around 35,500 and 12,000 jobs, respectively.  Ultimately, a balanced and phased strategy for the EU goes beyond mere cost savings: it protects Europe’s core industrial base while supplementing it with imports. Moving forward, the EU should prioritise strong, integrated European iron value chains while complementing them with targeted imports to strengthen resilience and enhance competitiveness.

Similar opportunities exist in the chemicals sector. Renewable-rich economies could emerge as competitive producers and exporters of intermediate products like renewable-based ammonia and methanol – crucial inputs for downstream products such as polymers, plastics, fertilisers and clean shipping fuel alternatives. 

Cost projections suggest that renewable-based methanol is poised to become a globally traded commodity, with competitive production possible across multiple renewable-rich regions. This shift helps break up concentrated supply chains dominated by a few fossil-fuel-intensive regions. Ultimately, it mitigates two major risks: the physical threat of disrupted trade routes, and the economic vulnerability of fossil-fuel price shocks driving up methanol costs.  

Cost projections for renewable-based ammonia also suggest that it could become competitive with fossil-based ammonia in Chile, Colombia, Morocco and Australia by 2040. Brazil and South Africa could follow, but only if affordable, de-risked finance is available to offset their higher cost of capital.

Yet, as India demonstrates, this transition is already becoming commercially viable. Driven by energy security concerns, early clean ammonia auctions are yielding prices of around three euros per kilogram of hydrogen and USD 600 per tonne for clean ammonia, which already falls in the range of current grey ammonia prices (see figure above). This shows that clean ammonia can increasingly compete with fossil-based alternatives in fertiliser production. Fertiliser producers in India are now signing fixed-price offtake contracts for up to 10 years, highlighting a crucial lesson: long-term purchase agreements are essential for scaling green molecules because they reduce risks and provide investment certainty.

This shift towards a decentralised production of green molecules fundamentally redefines global value chains, offering distinct advantages for downstream industries everywhere. For example in Germany, complementing domestic resources with the import of green intermediate products could cut costs by around 15 percent, generate 7.2 billion euros in domestic value added and create 68,000 new local jobs.  

The above examples demonstrate that green trade can be mutually beneficial. Political frameworks like the CTIP can play a key role in driving it through co-investment, technology co-development and regulatory alignment. Two key challenges stand out: mobilising investment and aligning standards. 

Our extensive stakeholder engagement reveals widely shared uncertainty over who should bear the risks and financing burden of green industrial projects outside Europe, creating hesitation among potential first movers. To overcome this, public finance is essential to de-risk investments, crowd in private capital and thus secure sufficient funding needed to scale up these projects. The EU’s Global Gateway – the investment arm of CTIPs for physical infrastructure – could address this, but its role needs to be clarified and strengthened. 

The multi-billion-euro packages require clear, jointly developed project pipelines. These should be built by broad coalitions – uniting producers, financiers and policymakers from both the EU and partner countries. Furthermore, scaling these investments hinges on long-term offtake agreements, blended finance and a stronger involvement of local financial institutions and multilateral development banks to reduce costs and ensure bankability.

Simultaneously, CTIPs require targeted coordination on common methodologies, metrics and terminology for products like green hydrogen, ammonia and iron. This alignment is vital to avoid standard fragmentation and future trade frictions while providing clear signals for cleantech investment and deployment. Emerging international initiatives such as the Integrated Forum on Climate Change and Trade, launched under the COP30 Presidency and co-led by Brazil and Australia, could help advance this kind of alignment. 

The race for green markets is on – those shaping the rules and building tomorrow’s value chains today will seize the lead.