New Energy Transitions Commission Briefing Highlights Trade Challenges
The Energy Transitions Commission (ETC) has recently published a significant briefing that delves into the global trade challenges facing the clean energy sector. Titled
Global Trade in the Energy Transition: Principles for Clean Energy Supply Chains and Carbon Pricing, this report addresses critical considerations for countries aiming to ensure the success of their energy transitions.
Understanding the Context
As nations worldwide increasingly focus on shifting towards sustainable energy solutions, this transition is not without its hurdles. The ETC briefing underscores that advancements in technology and the implementation of carbon pricing can expedite the transition, yet there are lingering concerns regarding concentrated supply chains. These apprehensions, coupled with fears that carbon border adjustments may be used as protectionist measures, threaten to hinder global progress.
Key Proposals for a Successful Energy Transition
The ETC report puts forth an optimal strategy to tackle two pivotal trade-related problems:
1.
Development of Domestic Supply Chains: The briefing outlines six crucial principles to guide policymakers in crafting effective domestic supply chains. The need to align energy security with economic strategies underscores this initiative.
2.
Establishment of Carbon Pricing: Given that some sectors have made strides towards decarbonization, the report highlights that a global agreement on carbon pricing is vital for achieving similar results in 'hard to abate' industries, like steel and cement.
Technological Advancements and Market Leadership
The briefing emphasizes that the cost of various clean energy technologies has significantly decreased over the past decade. For instance, the prices of solar PV modules have plummeted by 94% since 2011, and lithium-ion battery costs have also decreased by more than 90% since 2010. In 2024, nearly two-thirds of electric vehicles sold in China were priced competitively against their internal combustion engine counterparts, a testament to China's leading position in this market.
China's dominance in clean technology is often attributed to its strategic vision, diminished capital costs, and continuous innovation rather than merely its labor costs. In response, many countries are exploring the approach of nearshoring to diversify supply chains. However, the ETC warns that poorly designed nearshoring policies could inflate the costs associated with the global energy transition.
Six Principles for Nearshoring Success
To avoid some of the pitfalls associated with nearshoring, the ETC proposes six guiding principles:
1.
Diversification over Autarky: Strive for a diverse supply chain rather than complete self-sufficiency.
2.
Clarify Security Concerns: Differentiate between economic and national security to create context-specific policies.
3.
Targeted Tailoring: Focus nearshoring efforts on sectors where domestic production can be cost-effective.
4.
Fact-Based Tariffs: Ensure tariffs conform to factual analyses of existing subsidies, adhering to WTO standards.
5.
Employment Focus: Emphasize value-add and employment rather than ownership structures in technology transfer.
6.
Collaboration with China: Work collectively with China to enhance climate finance initiatives for lower-income countries.
The Need for Carbon Pricing Mechanisms
The report highlights that while many sectors are adopting low-carbon technologies, 'hard to abate' sectors continue to face financial hurdles to transition. With over 53 countries implementing some form of carbon pricing, the report notes that only the European Union has set prices high enough to provoke significant decarbonization.
Without global consensus on carbon pricing across key sectors, production may merely migrate to regions with laxer regulations, stalling emissions reduction efforts. Thus, carbon border adjustments and their implementation are crucial until a globally accepted pricing structure is established.
The ETC strongly advocates for the EU's CBAM (Carbon Border Adjustment Mechanism) while encouraging international standardization of carbon intensity measurement through organizations like the WTO. This is seen as a vital step toward fair competition and accountability across nations.
A New Era in Clean Energy
The world is embarking on a fresh industrial journey, underpinned by clean energy initiatives. With effective policy frameworks, including incentives for both supply and demand, there lie unprecedented opportunities for innovative trade dynamics.
Faustine Delasalle, ETC's Vice Chair and CEO of the Mission Possible Partnership, remarked, "Well-designed policies are essential for making the transition economically viable. Proper support for these projects will lead to significant investment decisions and propel us towards a sustainable energy future."
For more information and to access the full report, please
visit the ETC website.