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This edition of Geostrategic Analysis examines how global industrial policy aimed at driving decarbonization is accelerating even though COP30 delivered limited progress on global climate commitments. Major economies are advancing their own climate and economic strategies, creating new opportunities and risks for businesses navigating shifting regulations and market forces.
We spotlight the industrial sector amid new trade policies and localization trends. Shifting tariffs, procurement rules, and government interventions are reshaping manufacturers’ supply chains and investment decisions across key markets.
Other issues include the Gen-Z protests, Chile’s national elections, and Japan’s new government. These developments highlight the importance of scenario planning and stakeholder engagement for organizations worldwide.
In the monthly Geostrategic Analysis, the EY-Parthenon Geostrategic Business Group (GBG) provides its insights on key geopolitical developments. Each issue includes our take on recent or upcoming political risks events and what they mean for global business. Subscribe Now
Topic 1
Industrial decarbonization policies accelerate amid limited COP30 commitments
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Read moreMore than 190 countries and the EU convened at the 30th United Nations Climate Change Conference (COP30) in Belem, Brazil in November to negotiate on global climate goals. China’s delegation1 was second in size only to that of the host.
There was pressure to mark a turning point in global climate action, moving from discussion to implementation. Ahead of the conference, nearly 120 countries representing more than 70% of global emissions submitted updated Nationally Determined Contributions (NDCs)2, national climate action plans submitted every five years under the Paris Agreement. Though required to be increasingly ambitious via “the rachet mechanism,” the NDCs collectively commit to only 11% of the cuts needed to achieve a 1.5°C scenario3. However, some observers saw the enhanced NDCs as more practical, with detail at a sectoral level that provides countries with an economic plan alongside a climate plan.
Notably, the US pulled out of the Paris Agreement for the second time4 earlier this year. This was the first COP since its creation in 1995 at which the US was not officially represented.
The “Global Mutirão”5, agreed at COP30, called for a tripling of adaptation finance by 2035 and a “Belem mission” to increase collective efforts to cut emissions. But negotiators did not reach collective agreement on roadmaps to transition away from fossil fuels or reverse deforestation, meaning market forces and domestic policies will continue to drive those dynamics. In this context, it is important to note that these domestic policies, especially industrial policies, are material.
Governments will continue to implement policies that align decarbonization with economic competitiveness. For example, Japan’s Green Transformation (GX) framework7 aims to achieve emissions reductions and economic growth through climate transition bonds and public-private investments. China’s longstanding industrial policies to support emerging green sectors, such as solar panels and electric vehicles, mean it will continue to be a significant exporter of such technologies6, particularly to emerging markets. Canada’s newly announced Climate Competitiveness Strategy8 seeks to catalyze economic growth through a low-carbon transformation. Europe’s Clean Industrial Deal9 advances a program to turn decarbonization into a driver of growth in light of the systemic vulnerabilities and competitiveness gaps highlighted in the Draghi report10.
The US, in contrast, has stepped back from climate commitments and renewable energy incentives11 at the federal level, while launching critical materials initiatives12 and strategies13 driven by competitiveness and other concerns. Some states, such as California, are continuing to pursue specific climate objectives though.
Major sectors affected include mobility; aerospace and defense; energy and resources; infrastructure; and insurance.
Although COP30 sought to resolve contentious issues across finance, ambition, trade and transparency, inconsistent participation and the difficulty of coming to agreements highlights that fragmented and siloed sustainability policy and regulations will persist, creating uncertainty and hinder cross-border interoperability. Companies should closely monitor climate and energy policy in key markets, especially regarding phaseout timelines for polluting technologies, as these developments can significantly affect financial projections and investment plans around clean technologies.
Intensifying geopolitical competition and the accompanying increased reliance on industrial policy means some governments are seeking to secure transition-critical supply chains, prioritize domestic R&D and promote circularity to retain strategic materials. Executives should assess any opportunities these policies provide to access government incentives and lower capital costs for green projects and how evolving industrial strategies reshape the economics of sustainable activities, potentially enhancing ROI and unlocking new financing streams.
These opportunities may extend beyond the energy and resources sector. For instance, infrastructure companies may have procurement or public-private partnership opportunities related to energy projects. Industrials, chemicals, and advanced materials will likely see heightened demand for innovation in low-carbon processes and automotive companies in some markets may have access to incentives tied to electrification and supply chain localization — although they may face significant competitive pressures from established electric vehicle (EV) companies, such as those based in China.
For more information, contact Brian Tomlinson, John de Yonge.
Topic 2
Industrial manufacturers embrace localization to manage trade policy risks
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Read moreThe US has introduced and revised tariffs on an estimated $750 billion in imported industrial goods as of August, although those implemented under the International Emergency Economic Powers Act (IEEPA)14 are under review by the US Supreme Court.
In September, China introduced a new definition of “domestic product” for government procurement15, a market estimated by government sources at more than US$436 billion. The new guidelines include manufacturing location and cost specifications that give a 20% price advantage to products made in China.
In recent months, the European Commission has increased its investigations of potential violations of anti-dumping measures16, particularly for steel products from China and Turkey.
Geopolitical developments will continue to influence demand, supply chains and investment strategies for industrial products firms amid a growing trend of state interventionism.
More governments may follow China, Canada17, Australia18 and others in introducing greater preference for domestic industrial products in government procurement.
There will likely be continued volatility in tariff rates and export controls for various industrial products and the inputs upon which manufacturers rely (such as semiconductors).
Some governments, likely led by the EU, will explore more local content requirements and other non-tariff barriers to put conditions on or restrict foreign investments and reduce imports in strategic sectors. These actions will in many cases be a response to the perception that China’s industrial subsidies have led to overcapacity that is being exported.
Trade and industrial policies designed to onshore production have led Chinese, US and European industrial manufacturers to place more of their operations within the same countries as customers. The September edition of the EY-Parthenon CEO Outlook found that 42% of industrial products companies are already implementing localization strategies. These moves reflect a long-term shift away from the prioritization of cost efficiency in global supply chains and manufacturing footprints. Increased costs are now seen as unavoidable in managing geopolitical risk.
Industrial manufacturers should conduct scenario planning that takes into account long-term growth projections in local markets, the resilience of ROI for major capital commitments (especially when building new facilities), and the impacts of potential future policy changes — based on a careful analysis of the long-term trends without overreacting to short-term noise. Executives should explore how technologies such as AI and digital twins could support scenario planning efforts and build agility.
Government support for sectors that are customers of industrial products firms may also provide opportunities. For instance, the need to address water scarcity is emerging as a major growth driver, with demand for water treatment and management technologies accelerating. Localization can also support stronger relationships with local governments and customer communities, especially when investments foster local economic and job growth.
For more information, contact Jerry Gootee, Julie Buresh.
Topic 3
Gen-Z protests could lead to more policy changes, Chilean elections suggest a rightward shift and an emphasis on pro-business policy, Japan’s new government will seek to boost investment in key sectors
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Read moreThis year is on pace to have more than 100 social protests of 1,000 people or more — the third year in a row for which this trend would hold, according to the Carnegie Global Protest Tracker19. The “Gen-Z protests” that have occurred across Asia, Africa and Latin America have contributed significantly to this trend — from the protests that began in Bangladesh in July 2024 to those that emerged in Mexico in November 2025. While there are specific circumstances in each country, common motivations for the Gen-Z protests include the perception of a lack of economic opportunity20 for younger generations, poor public service provisions and broader governance issues. In some cases, these protests have led to a change in government or policy shifts. Digital mobilization has facilitated cross-border similarities among the protests thus far. The spread of such protests to more countries is likely to continue if similar grievances persist and protests lead to more government and policy changes.
In the short term, social unrest can interrupt business operations, resulting in disrupted production and supply chains — due to either worker absenteeism or protestors blocking transitways. Social unrest can also disrupt commercial operations, slowing sales volumes in cities that experience protests. To support a more stable operating climate, governments may need to provide additional youth employment schemes and other social services, leading to increased interventions in the economy and possibly higher tax rates to pay for these services. Executives should explore scenario planning to manage business continuity and financial planning. In addition, executives should assess whether heightened stakeholder expectations affect reputational risks for their organization, particularly among younger employees.
For more information, contact Courtney Rickert McCaffrey.
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Read moreChile’s first-round presidential election in November resulted in two highly divergent candidates in the runoff election on 14 December: José Antonio Kast, a right-wing Republican Party candidate, and Jeanette Jara, a left-wing Communist Party candidate. The election was the first since voting became mandatory in Latin America’s fifth-largest market, with strong voter focus on controlling crime and immigration. The divided result suggests a polarized electorate open to change from the current socialist Gabriel Boric administration. The November election also led to a more right-leaning Chamber of Deputies, a clear signal of a rightward shift in Chilean politics. This result leads many political analysts to expect Kast to win the runoff and govern via a right-of-center coalition.
While no party will have an outright majority in the legislature, a right-of-center coalition will likely pursue government spending cuts, although coalition dynamics and persistent public support for social spending may hamper these efforts. Under Kast, the government would also seek to reduce regulatory burdens on business and promote investment, including in the agricultural, construction and mining sectors. The latter is particularly significant given Chile is a leading exporter of critical minerals such as lithium and copper. Businesses should monitor post-election political negotiations ahead of the March 2026 presidential transition to assess which policy and regulatory changes are likely.
For more information, contact Adam Barbina
Japan’s first female Prime Minister, Sanae Takaichi, had a nearly 70% approval rating for her cabinet following her first month in office, which included hosting US President Trump in Tokyo and participating in the ASEAN and APEC Summits. Prior to the recent election, the ruling Liberal Democratic Party (LDP) was in its weakest parliamentary position in decades, and Takaichi is emerging as a unifying party leader. Takaichi is most closely aligned with the policies of her political mentor, the late Shinzo Abe. Like Abe, she favors an expanded national security posture and looser fiscal policy. She also prioritizes the US-Japan relationship. Takaichi may face difficulties maintaining the LDP’s coalition with the Innovation Party and passing legislation.
Under Takaichi, Japan is likely to reverse the fiscal austerity approach of the previous government. Takaichi has signaled support for targeted stimulus which may create opportunities for businesses. The FY26 budget, to be introduced in late December, will set out investment plans focusing on 17 key sectors, including defense, AI, semiconductors, energy and digital and cybersecurity. This policy clarity, alongside Takaichi’s successful hosting of President Trump, may contribute to a more stable business outlook and more interest from foreign investors. However, businesses should note that Takaichi will continue to face domestic political challenges associated with coalition dynamics. Also, recent tensions with China over comments about Taiwan underscore the need to remain vigilant about geopolitical risk in the region.
For more information, contact Laura Winthrop, Nobuko Kobayashi.
Topic 4
Global energy demand will rise 15% by 2050, driving over $85 trillion in investment.
Analysis of the EY Energy and Resources Transition Acceleration (ERTA) model highlights that global energy demand is set to rise by more than 15% by 2050, driven primarily by emerging markets and the rapid expansion of digital infrastructure such as data centers. While renewables are projected to see the largest absolute growth, the model shows that a balanced mix of energy sources will be required to ensure reliability and affordability. There is likely to be a clear divide between sectors where technologies are proven and commercially viable, and those still facing economic and technical hurdles. The next five years will be pivotal for scaling up technologies, laying the foundation for a projected cumulative investment of over US$85 trillion by 2050 under business-as-usual forecast. The pace and scale of the transition is expected to vary significantly by region, as well.
In the short term, companies across all sectors could face higher energy costs as rising demand may outpace supply growth. To remain competitive, businesses will need to adapt to evolving regional policy landscapes and incorporate short-term and long-term energy cost and availability into investment and global footprint decisions. At the same time, companies in sectors aligned with mature transition technologies, such as renewables, grid infrastructure and electrified transport, are likely to benefit from supportive policy frameworks and financing conditions — including state-backed financing in some markets. Energy executives should assess opportunities to align with governments’ energy policy objectives in key markets and explore innovative financing solutions.
Additional EY contributors to this article include Jessica Cunningham, Shauna Steele and Charlotte Weston.
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The EY-Parthenon Geostrategic Business Group (GBG) provides its take on key geopolitical developments and the impact of these political risks on international business. Each monthly EY-Parthenon Geostrategic Analysis issue includes assessments of recent or upcoming geopolitical risk events and what they mean for companies across sectors and geographies.
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