Mitigating climate change and the shortage of natural resources require rapid and widespread development of renewable energy. As the demand for renewable energy has increased largely in the past 10 years, the number of renewable energy trade disputes is also rising. A number of countries have found that their feed-in-tariff (FIT) programs are at odds with the fair trade agreements in the international trade of renewable energy. Therefore, this post will introduce the impacts of trade barriers on the international trade of renewable energy.
Protectionism is the largest threat in preventing fair trade in the global renewable energy market. Many countries specifically protect local energy companies in their FIT programs. For example, they impose high tariffs for importing renewable energy equipment and provide the local companies with large amount of subsidies, development grants, favorable loans, and export credits.
The solar power industry is a good example of this protectionism. Asian countries, such as China and India, have the largest market share of the world’s solar panel production due to low labor costs. Solar module manufactures in Europe and North America have been unable to compete with their Asian counterparts, and therefore they impose large tariffs and subsidies to protect local markets. For instance, Ontario’s solar subsidy policy mandates that a large percentage of solar components must be manufactured in Ontario in order to benefit from FIT. Italy offers an additional 5 to10 percent in incentives for solar components manufactured in the EU. These subsidies greatly hurt China, India, and other manufacturing nations as their energy exports become more expensive and therefore less attractive worldwide.
Tariff and non-tariff trade barriers are the two forms of protectionism. In India, for example, renewable energy components are levied a 7.5 percent tariff, while Brazil recently imposed a 14 percent tariff on wind power components. Tariffs are the first policy to consider when renewable energy companies do business in a foreign country. Because renewable energy trade involves large amounts of expensive components, tariffs are the major expenses for this type of trading. High tariffs create obstacles in the international trade of renewable energy and therefore protect domestic industry.
Non-tariff barriers can be even more restrictive for companies overseas. 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. Therefore, costs rise which greatly hurts renewable energy trade. Since renewable energy is a relatively new business field, new companies are often unable to bear the large acquisition expenses. Under such conditions, these companies may refuse to export renewable energy to other countries .
Some people argue that these trade barriers will slow the transition to a sustainable global economy. Others might say that protectionism is essential for a nation to fully develop its renewable energy resources. What do you think of this problem?