Much of the progress in developing and deploying renewable energy technologies has been achieved thanks to effective government policies. Policy continues to be important to overcome economic, technical and institutional barriers. By the end of 2019, nearly all countries had renewable energy support policies in place, although with varying degrees of ambition, scope and comprehensiveness. Jurisdictions have adapted policies to meet their specific circumstances, including to support increasing renewable energy capacity and generation, to boost job creation, and to increase energy access and security. Trade policy also had an impact on the production, exchange and development of renewable energy products, as well as on renewable energy demand levels within specific countries. REN21’s Renewables 2020 Global Status Report (GSR) highlights the current and emerging global renewable energy policy scenario in great detail. Given below is a select excerpt focused on this evolving policy scenario from the report.
Among various types of policies, trade policy has an impact on the production, exchange and development of renewable energy products, as well as renewable energy demand levels within specific countries.
Trade policy, trade agreements and renewables
As a key defining feature of the globalising world economy, trade has greatly shaped the production, exchange and technological development of renewable energy products. It allows for the formation of larger and more competitive markets for these technologies, leading to greater availability and lower costs. Trade creates the conditions for more-efficient producers to expand and capture economies of scale, helping to make renewable energy products more affordable.
Although trade is often referred to as occurring between countries (such as between China and the United States), it is essentially an entrepreneurial activity organised by companies. Renewable energy companies look to foreign markets and suppliers as they scale up their operations and production. Supply chain trade has grown as companies have systemised their production across multiple countries, especially for multi-component goods such as wind turbines and solar panels. Many renewable energy products are made by an international division of labour organised by supply chain trade arrangements.
“The international trade environment has become more challenging. Protectionist measures have risen from just over 600 in January 2017 to more than 1,100 by the end of 2019. Rising or high-level protectionism restrains the growth in trade in renewable energy products.”
Governments (national and sub-national) and the World Trade Organization (WTO) set the rules for trade, including measures that restrict or promote international trade in renewable energy goods and services. For example, WTO regulations prohibit export subsidies that distort international market competition by giving “unfair” trade advantages to subsidy-receiving exporters. Governments also can apply trade “safeguard” or “remedy” measures against alleged unfair imports, or they can apply tariffs or other protectionist measures to defend domestic producers against foreign competition. Certain rules are trade-facilitating, including technical and environmental standards that enable renewable energy products exported from one location to be accepted and used in foreign locations.
The international trade environment has become more challenging. Protectionist measures have risen from just over 600 in January 2017 to more than 1,100 by the end of 2019. Rising or high-level protectionism restrains the growth in trade in renewable energy products. Meanwhile, many trade conflicts remain unresolved. For example, China, India and the Republic of Korea all have pending disputes with the United States at the WTO regarding trade remedy measures applied to their solar photovoltaic (PV) exports. Similar conflicts have arisen related to the wind industry and to rare earth materials used to manufacture renewable energy products.
Trade in renewable energy goods and services will be limited where production and exchange are inherently localised, for example for hydropower dams and tidal barrages, whose construction entails primarily the use of locally sourced bulk materials (such as cement). Ever taller wind turbines make international trade in large components such as towers, blades and nacelle casings less economic due to the transport costs of moving heavy bulk items. Offshore wind turbines in particular are produced near their installation sites, although often by foreign-investing firms.
Meanwhile, smaller-scale, multi-component and multi-material renewable energy technology products and fuels lend themselves to international supply chain trade. Bioenergy products such as wood pellets and ethanol are traded worldwide as bulk cargo. Cross-border trade in hydro-electricity (for example, in Southeast Asia) is also well established. However, the chronic lack of global-level data on renewable energy trade impedes analysis of wider trends.
Conventional trade policy measures generally affect renewable energy trade on the demand side. For example, the raising and lowering of import tariffs affect end prices that in turn determine demand levels. Domestic-level policy measures tend to affect renewable energy trade more on the supply side – typically industrial policies aimed at strengthening the trading capacity of home producers of renewable energy products. Many governments have used “local content requirements” to develop their solar and wind energy industries, mandating that domestic and foreign-investing producers source certain percentages of their materials and components locally. Rules of origin applied in free trade agreements can have similar trade-diverting effects, especially when they set high national content ratios for products to qualify for free trade treatment.
Environmental measures have been included in free trade agreements (FTAs) since the 1970s, when renewable energy trade focused mainly on promoting hydropower in developing countries. More recently, climate change has raised renewable energy’s profile and coverage in FTAs. Of the more than 300 agreements in force as of early 2020 (up from just 15 in 1990), around 50 had measures promoting renewable energy trade and development, although many are primarily aspirational soft law clauses calling on signatory countries to deepen their co-operation on renewables.
The WTO itself has no specific agreements or rules on renewable energy or climate action, and its interaction with the United Nations Framework Convention on Climate Change on trade remains extremely limited. Furthermore, the WTO’s grip on the global trade system has weakened. In the last two decades it has been FTAs that have set new innovative measures on renewable energy trade. In 2019, for example, Costa Rica, Fiji, Iceland, New Zealand and Norway launched talks for the Agreement on Climate Change, Trade and Sustainability (ACCTS), which could prove a landmark pact not just for promoting renewable energy trade and development, but for more effectively aligning trade with climate action efforts generally.
Cross sectoral targets and policies
Renewable energy policies typically are enacted at a single level of governance and tend to focus on a single end-use sector. Strategies to align renewable energy policy across multiple levels of governance and across multiple economic sectors are rare. Although most renewable energy policies are not integrated or co-ordinated across sectors or levels of governance, examples of integration and co-ordination are emerging. Co-ordinated policy efforts often are organised under national or state-/provincial-level energy or climate change strategies. For example, in 2019 Scotland introduced a comprehensive programme that sets out policies at multiple levels of governance (national and local) to promote renewables across all sectors of the economy. Also, the Netherlands offered EUR 5 million (USD 5.6 million) to support the production of renewable electricity, renewable gas, renewable heat, and combined heat and power for companies, institutions and non-profit organisations.
Targets are a primary means of expressing commitment to renewable energy and sending a positive signal to market players. Although targets on their own are generally insufficient to stimulate investment in renewables, they may be converted into action through the adoption and implementation of complementary policies. Globally, most renewable energy targets are aimed exclusively at the power (electricity) sector. However, some jurisdictions have enacted independent targets in the heating and cooling and transport sectors, and some (although fewer) have committed to cross-sectoral, economy-wide renewable energy targets.
Only one cross-sectoral target was adopted during 2019. Spain committed to an economy-wide renewable energy target of 42% of final energy consumption by 2030 – which is more ambitious than the European Union’s (EU) target of 32% by 2030 – and also committed to individual targets for renewables in electricity generation and transport, and to improvements in energy efficiency. By comparison, 166 countries had targets for renewable power alone as of the end of 2019.
The full report can be accessed by clicking here