Commitment under recognition uncertainty: how fossil-market flexibility delays or accelerates green investment

Cross-border trade in certified green commodities has stalled despite falling costs and substantial policy commitments, with green hydrogen the most visible case. I show that what holds commitment back in these markets is recognition uncertainty over whether certified output will count as “green” under the importing jurisdiction’s rules. Most existing frameworks compare supply sources with that recognition problem already resolved. I instead study when buyers make an irreversible bilateral commitment while that question remains unsettled and flexible fossil supply remains available. In that setting, incumbent flexibility acts as a “bridge” that accelerates green commitment when recognition is clear, but as a “destination” that sustains delay when recognition is uncertain. Moreover, for certified goods with near-zero embedded emissions, reducing recognition uncertainty accelerates commitment more than additional carbon-price support, all the more so where fossil-market flexibility is greater. In an Australia–Japan calibration where LNG is the incumbent market and green hydrogen is the certified supply chain, clearer recognition has shifted incumbent LNG toward a “bridge” role between 2019 and 2024. Among the instruments considered, mutual recognition brings commitment forward the most.