2012 has been declared the International Year of Sustainable Energy for All. Capturing one of Secretary-General Ban Ki-Moon’s priorities in his second term, it seeks to meet three objectives by 2030:
- Ensuring universal access to modern energy services
- Doubling the rate of improvement in energy efficiency
- Doubling the share of renewable energy in the global energy mix.
While such goals are laudable, the reality of achieving a viable transition towards a less fossil-intensive future is being made even more complicated by non-tariff trade barriers (NTBs). From Angola to Argentina, barriers to trade in sustainable energy technologies are appearing across the world, notably in the form of domestic content requirements for key components that make up a sustainable energy system.
Domestic legislation has been passed to favor local manufacturing interests, much to the displeasure of their foreign competitors. Ontario’s Green Energy Act, passed in 2009, has come under fire for its domestic content requirements. Under its provisions, electricity companies that seek to benefit from its feed-in-tariff program for renewable energies must use a minimum amount of local goods and services when developing wind or solar energy projects. Governments complained that such rules violated Canada’s obligations as a member of the WTO. Following Japan’s consultation requests with the Canadian government, the WTO’s Dispute Settlement Body established a panel to decide on the issue. While a decision is still pending, the results will surely have wide-reaching consequences as similar measures have been enacted in countries all over the world.
Industry representatives complain that these requirements limit the spread of clean energy technologies. Speaking at the United Nations Conference on Trade and Development in November, Jens Martin Alsbirk from Vestas Wind Systems presented some of the negative effects of domestic content requirements. According to Alsbirk, costs can increase 20-25% in some cases, while competition becomes limited to those firms willing to establish domestic manufacturing capabilities. Given the cost of setting up new factories in individual countries, domestic content requirements could make for a riskier investment should markets turn bearish.
So-called trade wars could erupt among a number of countries. For example, following the passage of the 2009 US Stimulus Package, Canada threatened the US with trade sanctions for its ‘Buy American’ provisions that stipulated domestic content requirements in all public works projects, including those in the sustainable energy sector. It now appears that the US may be prepared to take similar measures against Chinese solar panel manufacturers, following accusations by the International Trade Commission of dumping. India has claimed it may follow suit.
But as Steven Cohen, Executive Director of the Earth Institute at Columbia University, recently wrote, trade wars will get us nowhere in achieving the growth of a green economy. The slew of suppliers, designers and producers of the complex components that go into creating sustainable energy technologies demonstrate how the industry is increasingly - and perhaps inevitably - a global endeavor. While national governments may be eager to bolster domestic production capacity, ignoring this fact could have dangerous consequences for achieving green growth.
One proposed solution: a Sustainable Energy Trade Agreement (SETA). Spearheaded by the ICTSD (International Centre for Trade and Sustainable Development), the proposed agreement would serve as a means to liberalize trade in sustainable energy goods and services. Proponents claim that stalled WTO agreements and ambiguous rules surrounding energy services necessitate a new way forward. While still a relatively new concept, the development of a future SETA appears to be gaining traction - especially with the private sector.
As 2011 reached its end, December’s WTO ministerial meeting provided a glimmer of hope for the year to come. In a joint pledge, a number of countries, including the United States, Japan and Canada, and the EU, agreed to not “raising new barriers to trade in goods and services, imposing new export restrictions, or implementing WTO-inconsistent measures in all areas, including those that stimulate exports.” If such promises hold true, the future need for a SETA-like agreement may be diminished. But, if the rising US-China solar spat is any indication of where things are headed, a new venue for resolving these trade issues may prove itself necessary.