By adopting such a policy, a country or a state intends to secure jobs — green jobs — while building up a clean energy portfolio.
Right?
Wrong.
“There’s a superficial logic here that’s easy to communicate to the public,” says Michael Zarin, Director, Group Government Relations. “It just doesn’t work in practice.”
Green protectionism — placing trade or investment barriers on renewable energy development — is spreading quickly, he says. It has become particularly worrisome in big or growing wind markets like Canada and the United States, Brazil, China, India, and others. Even countries within the EU like Portugal and France have joined the trend, or are considering it.
Costs up, competition and innovation down
In a speech at the European Parliament in March, CEO Ditlev Engel said, “I can understand the allure of promoting national industries to create job growth at home. By artificially segmenting the common market into micro-markets…, we will lose economies of scale and dilute the rigors of competition that are essential to technological innovation.
“Adopting ‘buy national’ policies is a mistake,” Engel said. “Such policies [are] counter-productive, economically inefficient and unsustainable.”
Tariffs and everything else
“Green protectionism” covers two types of trade barriers: tariff- and non-tariff. For the former, a country taxes imported wind turbines, solar or other renewable parts or units. In India, for example, renewables components are levied a 7.5 per cent tariff, while China’s tariff stands at 8 per cent. Brazil recently imposed a 14 per cent tariff on wind turbines up to a specific size.
Non-tariff trade barriers can be more restrictive. For example, China requires foreign companies that wish to enter the Chinese market to form a local joint venture, giving Chinese partners 51 per cent ownership. Portugal issued a wind tender, announcing it would award only bidders that had research collaborations with local universities.
“Non-tariff barriers are not as obvious, but private companies have more difficulties in addressing those,” says Morten Dyrholm, Director, Group Government Relations.
The wind energy industry succeeded in persuading the Brazilian government to drop its explicit local content requirement for a public tender in December 2009, says Zarin. On the other hand, he adds, most of the developers that won projects there will seek local funding, and the Brazilian national development bank only provides financing if a certain percentage of the content is produced locally.
“Meaning that for a significant portion of the wind farm projects, there’s still a de facto local content requirement,” he says, “so the initial positive step is somewhat diluted.”
In Canada, Ontario has also passed a local content requirement for wind plant, says Philip Siegle, International Policy Analyst.
“We have been trying to persuade Ontario not to go this route — or to extend the phase-in period,” Siegle says. “While Ontario is an industrial province, it takes time to certify, train and develop a supply chain for our particular products. Just because you’re producing Ford automobiles one day does not mean you can produce Vestas V90s the next.”
Vestas fights back
Vestas has been active on its own and with other companies and associations to fight green protectionism from several angles: directly with government officials, indirectly through industry lobby groups and international trade talks, and internally as well, says Dyrholm.
“We are getting our organization ready to deal with the bidding requirements in places like China,” he says.
The European Wind Energy Association (EWEA) has been lobbying the European Commission to recognize international opportunities to discuss eliminating tariffs and non-tariff barriers for wind and renewables, says Justin Wilkes, Policy Director at EWEA.
The wind industry has also been promoting the adoption of policies like Sustainable Energy Free Trade Areas (SEFTA) or an Environmental Goods and Services Agreement (EGSA), both of which offer free trade with renewable energy technologies, among other measures.
“We have been working closely with Vestas and other leaders in the green economy to open up trade in technologies and services that support the fight against climate change,” says Thaddeus J. Burns, Senior Counsel, Intellectual Property & Trade, at GE. “We support an EGSA that lowers tariffs and opens up markets.”
Likewise, Vestas wants governments to commit to reducing the costs they impose on environmental goods and services, Zarin says. “Removing or at least substantially lowering these barriers would provide both an important contribution to global climate change goals and a unique opportunity for a sustainable, green-growth European business model,” he says.
