Domestic Incentive Measures for Renewable Energy With Possible Trade Implications

In recent years the manufacturing of renewable-energy technologies has become truly global. The associated rise in international investment and trade in goods and services related to renewable energy has been rapid, but it has not always been smooth. Already there have been challenges at the WTO, and the unilateral imposition of countervailing and anti-dumping duties, in response to some countries' policies on the grounds that they distort trade.

Against this background, this paper surveys the numerous domestic incentives used by governments to promote renewable energy.  We focus on those that might have implications for trade, either by increasing opportunities for trade or by inhibiting imports or promoting exports.

Many OECD countries, and an increasing number of non-OECD countries as wells, have established national targets for renewable energy. To help boost the rate of penetration of renewable energy in their economies, most of the same countries are providing additional incentives.  Market-pull incentives for the deployment of renewable-energy-based electricity generating plants include quota systems.  These are usually administrated through green certificates or fixed per kilowatt-hour feed-in tariffs and premiums. Renewable fuels for transport are typically promoted by governments through obliging fuel suppliers to mix ethanol or biodiesel with their corresponding petroleum-derived fuels. Frequently, renewable fuels for transport also benefit from reductions or full exemptions from fuel-excise taxes.  In a few countries, production bounties are also used.

Many national and sub-national governments also support capital formation in these industries with grants, subsidised loans, loan guarantees, or a combination of instruments. In some jurisdictions, access to government support schemes has been made conditional upon meeting certain minimum levels of domestic content. Such domestic-content requirements are highly controversial because of their direct effects on trade. These effects, and the effects of other policies in combination and in isolation, are examined through a graphical analysis of generic policies, using a simplified stylised representation of the relevant markets. The basic message is that while many domestic incentives are both increasing the supply of renewable energy and facilitating trade in associated technologies and renewable fuels, some -especially those combined with border protection or domestic-content requirements -are likely reducing export opportunities for foreign suppliers, and raising domestic prices for renewable energy as a consequence.