Renewable Energy World has an excellent article about how countries (and regions) are introducing protectionist trade barriers as they attempt to cash in on the growing market for renewable energy.  This is becoming known as green protectionism.  A jurisdiction puts in place policies that favour their own companies and discriminate against all others.  The fear is that this kind of protectionism could substantially slow the transition to a low carbon economy by blocking entry by low cost foreign competitors and making it more expensive for firms to produce green energy.

Several countries (or their states and provinces) are introducing “buy local” laws to prevent imports from impeding the growth of local businesses that produce renewable energy components such as wind turbines or solar panels.  These laws generally mandate that a renewable energy firm wishing to operate in that area must purchase at least 50% of its equipment from local suppliers.  These policies immediately act as a trade barrier for firms hoping to buy cheaper components in other countries such as Asia.

The article mentions the European Union, Italy, India, Brazil the US state of Ohio and the Canadian province of Ontario as prime examples of jurisdictions which have imposed “buy local” laws.

The theory is that bringing in large-scale renewable energy imports before local development has a chance to get going could kill nascent local renewables industries.

In the case of Ontario, the policy is enjoined with the energy/environmental goal of reducing C02 emissions from coal-fired plants and replacing this power with that produced by solar and wind.  Generous subsidies are guaranteed to solar and wind companies provided they purchase 50% to 60% of their parts from local companies. As a result, Ontario has attracted significant manufacturing investment in renewable energy production.

Ontario’s actions have not gone over well with suppliers in other countries and both Japan and the European Union have launched complaints against Canada at the World Trade Organization (WTO) which polices illegal trade policies.  (Earth’s Energy reported on these actions here.)

India also has a law that states that solar modules must be produced in the country to benefit from state subsidies.

Italy has a solar subsidy law which offers additional 5-10 percent in incentives for solar components manufactured in the EU. This policy too could attract WTO scrutiny.

The European Union protects its biofuel industry with high subsidies for local businesses and high tariffs on imports.  A recent report criticized this policy calling it “a classic example of ‘green protectionism’ – protectionism that is not motivated for the benefit of the environment, but which uses environmental concerns to pursue non-environmental objectives.”  Moreover, the EU’s biofuels policy ‘clearly violates WTO principles and rules’.

Green protectionism can take different forms and it is clear many countries are engaging in it:

So-called “green protectionism” covers two types of trade barriers: tariff and non-tariff. Under the former, a country taxes imported wind, solar or other renewable parts or units. In India, for example, renewable energy components are levied a 7.5 percent tariff, while China’s tariff stands at eight percent. Brazil recently imposed a 14 percent tariff on wind turbines up to a specific size.

Despite being less obvious, non-tariff trade barriers can often be even more restrictive and onerous for overseas companies to address. 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. Portugal has issued a wind tender, announcing that it would award contracts only to bidders engaged in research collaborations with local universities.

As for the future, the author of this article is not very optimistic.  Despite some efforts to remove these trade barriers, the successes are few and far between.

The bottom line is that renewables are likely to continue to be protected in one form or another – whether through tariffs, subsidies, development grants, favourable loans or export credits….The impact this will have on the transition to a low carbon economy is harder to gauge but looks set to endure, particularly in a time of economic crisis when many politicians are keen to appeal to the perceived self-interest of voters.


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