Trade Barriers Dim Renewable Energy's Prospects

20/10/2011

Protectionism in the renewable energy industry takes many forms depending on location and sector. For example, in the U.S., Ohio is stringently enforcing a law that half of its mandated renewable energy must be supplied through in-state production.

Partly to avoid problems with the Constitution's commerce clause in relation to interstate transactions, other U.S. states are less obviously protectionist but nevertheless still require a degree of local production. Some states such as Colorado and Missouri apply a 1.25 multiplier to renewable energy certificates produced from in-state resources.

Protectionism in the Solar Sector

Protectionism in the industry is not just location-specific but also varies across sectors. Solar is a particular cause for concern among policymakers considering issues related to subsidies. Overall, the solar sector has seen a massive boom, growing by more than 150 percent in 2010.

But most of the world's solar panel production has become concentrated, with almost 60 percent occurring in China and Taiwan due to lower labour costs, access to capital and good infrastructure. In many cases, European solar module manufacturers have been unable to compete with their Asian counterparts.

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In the face of this competition certain European states have shifted their solar policies. For example, France cut subsidies to the solar power industry, citing massive imports of cheap solar panels from China.

A similar shift is occurring on the other side of the Atlantic in the heavily industrialised Canadian province of Ontario. There, a comprehensive solar subsidy policy mandates that a large percentage of solar components must be manufactured in Ontario in order to benefit from feed-in tariffs (FiTs). The goal is to generate 13 percent of Ontario's energy from renewable sources by 2018, and zero from coal by late 2014.

Further afield, Italy has brought in a solar subsidy law called Conto Energia 4, which offers additional 5-10 percent in incentives for solar components manufactured in the EU. This law is also likely to prove unpopular in the long run, not least because much of the manufacturing that feeds Italy's solar industry occurs in Spain and Germany. It could also lead to China and other manufacturing nations taking Italy to the WTO.

India, too, has a law that states that solar modules must be produced in the country to benefit from FiTs. Indeed, the law is expected to become stricter, specifying that solar cells must also be produced within India in future despite evidence that, in the long run, such policies are almost always counterproductive, economically inefficient and unsustainable.

More than One Trade Barrier

So-called "green protectionism" covers two types of trade barriers: tariff and non-tariff. Under the former, a country taxes imported wind, solar or other renewable parts or units. In India, for example, renewable energy components are levied a 7.5 percent tariff, while China's tariff stands at eight percent. Brazil recently imposed a 14 percent tariff on wind turbines up to a specific size.

Despite being less obvious, non-tariff trade barriers can often be even more restrictive and onerous for overseas companies to address. For example, China requires foreign companies that wish to enter the Chinese market to form a local joint venture, giving Chinese partners 51 percent ownership. Portugal has issued a wind tender, announcing that it would award contracts only to bidders engaged in research collaborations with local universities.
Protectionism is the Wind Sector

Lobbying the European Commission to recognise international opportunities for discussion of the elimination of tariffs and non-tariff barriers to wind and other renewables, comes the European Wind Energy Association (EWEA), says its policy director, Justin Wilkes.

The wind industry has also been promoting the adoption of policies such as Sustainable Energy Free Trade Areas (SEFTA) or an Environmental Goods and Services Agreement (EGSA), both of which offer free trade in renewable energy technologies, among other measures.

The Future

The bottom line is that renewables are likely to continue to be protected in one form or another – whether through tariffs, subsidies, development grants, favourable loans or export credits. Examples of territories turning their backs on protectionism, as has happened in California and could yet happen in Ontario in October, are rare. The impact this will have on the transition to a low carbon economy is harder to gauge but looks set to endure, particularly in a time of economic crisis when many politicians are keen to appeal to the perceived self-interest of voters.

Source: renewableenergyworld.com

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