Sam Fankhauser, Raphaela Kotsch and Sugandha Srivastav

The world economy is transitioning toward cleaner, environmentally more sustainable forms of growth. Countries need to adjust their economic strategies to this emergent reality. This paper explores what the transition to a low- and ultimately zero-carbon economy means for the competitiveness of emerging markets. We construct two indicators to assess low-carbon competitiveness at the country-sector level: the speed at which country-sectors convert to low-carbon products and processes (measured by low-carbon innovation) and their ability to gain and maintain market share (measured by existing comparative advantages). Taken together the two indicators paint an intuitive picture of the strengths, weaknesses, opportunities and threats faced by different sectors and countries in the low-carbon economy. We find that all countries have low-carbon growth opportunities and comparative advantages in some sectors. However, the low-carbon transition is likely to be disruptive. We find very few sectors where the existing market structure might prevail. East Asian economies like China and South Korea appear best positioned to take advantage of these changes, thanks to their deliberate efforts in promoting low-carbon innovation. Other emerging markets such as Brazil, Mexico and Turkey are less engaged in frontier green innovation. For them the low-carbon transition is more likely to be a threat.