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Today, Enel Foundation, the Harvard Project on Climate Agreements, the Massachusetts Institute of Technology (MIT), and the Foundation Environment-Law Society co-hosted an official side event at the 29th United Nations Climate Change Conference (COP29) in Baku, Azerbaijan.
The event featured the presentation of a new research paper by Michael Mehling, Deputy Director of the Center for Energy and Environmental Policy Research at MIT, titled “Good Spillover, Bad Spillover? Industrial Policy, Trade, and the Political Economy of Decarbonization.” This paper is the twelfth in a series of annual discussion papers supported by Enel Foundation as part of its ongoing collaboration with the Harvard Project on Climate Agreements.
Mehling’s study served as the focal point for discussion among prominent speakers at the event, moderated by Professor Robert Stavins, the A.J. Meyer Professor of Energy and Economic Development at the Harvard Kennedy School and member of the Scientific Committee of Enel Foundation. Alongside Mehling, the panel featured Daniele Agostini, Head of Energy and Climate Policies at Enel; Chantal Line Carpentier, Head of Trade, Environment, Climate Change, and Sustainable Development at UNCTAD; and Joyashree Roy, Distinguished Professor and Director of the SMARTS Center at the Asian Institute of Technology.
The paper explores the spillover effects of industrial decarbonization policies, which can either accelerate or, conversely, hinder climate action. Key findings aim to reframe climate policy to maximize positive externalities while mitigating negative ones.
In particular, the study examines climate policies that distribute decarbonization costs across society, such as subsidies for clean energy or public investments in R&D and those that place direct private costs on emissions, like carbon pricing. Whereas the former tend to generate positive spillover effects, including the spread of low-carbon technologies and the creation of new markets, the latter often produce negative spillovers - most notably, carbon leakage, where emissions are shifted to regions with less stringent regulations. Also, from a political economy perspective, the latter type of policies faces strong political resistance, as the benefits are diffuse and only visible in the long term. This resistance empowers opponents of climate policies, enhancing their veto power.
These insights suggest strategic opportunities for policy interventions to initiate a virtuous cycle, and thus increasing climate policy ambitions over time. However, the study warns that protectionist industrial policies - such as tariffs, domestic production targets, and local content requirements - risk fragmenting the free flow of goods, services, capital, and ideas, a process that has historically supported positive spillover effects. In conclusion, the paper argues that international cooperation must remain central to designing climate policies that generate positive, cross-border spillover effects, which are essential to achieving global decarbonization targets.
The full paper and a two-page summary can be downloaded here.
