How Can Trade Policy Maximize Benefits From Clean Energy Investment?

The growth of renewable energy is one of the most significant developments in the global electricity market over the last two decades. Costs have reached a point where renewable energy is competitive in almost all countries. While wind energy generators or solar modules still tend to be procured from global manufacturers, a wide range of components such as blades, electrical components, or civil work can increasingly be procured and built locally.

Today, most low-income and lower-middle-income countries are net importers of wind and solar components. They tend, however, to impose lower tariffs on components sourced globally such as wind turbines or solar modules than components that are easier to source domestically. Depending on the context, the imposition of tariffs may stimulate the deployment of additional productive capacity, particularly for products that are suited to local production. A good example is the production of heavy or bulky components such as wind towers, for which minimizing transport distances provides a cost advantage. In these cases, however, there is a need to balance the likelihood of achieving competitive production with increased project cost and the economic value of local production.

These considerations have, in turn, implications for future initiatives at the regional or plurilateral level to liberalize environmental goods and services and the participation of developing countries.