Friday, January 1, 2010

Green protectionism?

During the battle over the closure of its wind turbine blade manufacturing plant on the Isle of White, Vestas told the Guardian (7/8/09) that UK turbine manufacturers were at a disadvantage compared with those in countries that insist that their windfarms use locally made components. In China, for example, at least 80% of components used must be made locally. In Spain and Portugal, windfarm developers must show how many jobs they will create by sourcing supplies locally in order to get planning approval for their projects. Vestas said “There is a strong political will in most countries to favour local manufacturers.”

However there are also arguments against ‘local content’ rules. Essentially they are protectionist- which is seen by some as undesirable since it limits open markets. Ontario’s new Feed-In Tariff for PV solar projects, which provides 44.3-80.2 cents/kWh for PV solar depending on size, includes a requirement that grid-connected solar projects must involve a minimum amount of ‘local content’: small rooftop PV must have 40% local content as a combination of labour and equipment, larger systems 50%. And in two years time that will rise to 60 %. The aim is to boost local employment. This has caused a stir in Germany, where PV manufacturers say Canada is breaching its obligations to the World Trade Organization. Germany’s solar-industries association, BSW-Solar, has protested against what it calls Ontario’s ‘local protectionism.’ It says ‘The actions taken in Ontario directly contravene Canada’s international trade commitments and place foreign solar equipment makers at a serious competitive disadvantage’. Ontario officials however say that ‘the domestic content rules have been developed in a way that welcomes investment from outside Ontario, because only a portion of the costs are required to be spent in Ontario’. See: tinyurl.com/ykssy9y

But is protectionism so bad? Are free markets so wonderful? Purely economic protection might be seen a too parochial and partisan- just defending local interest- but if the net impact is to create more projects and reduce more emissions, then globally surely that is to be preferred? It all depends on whether you think that open market competition is progressive and efficient, or whether you believe that it’s simply about profits- strengthening the dominant players and weakening rivals.

The evidence from the renewable energy field seems pretty clear. Competitive systems like the UK Renewable Obligation (RO) have been far less successful at building renewables capacity than fixed price Feed-In Tariffs (FITs): Germany now has round 25 Gigawatts of wind capacity in place, whereas the UK only has achieved just over 4GW so far- with some of that being offshore and supported by capital grants. And perversely the RO has cost consumers more: the UK’s ROC system cost consumers 3.2 pence/kilowatt hour, whereas in 2006 the German Feed-In Tariff only cost consumers 2.6/p/kWh- despite Germany having a much bigger wind capacity in areas with generally much less wind than in the UK, and also supporting the installation of a lot more very expensive PV solar capacity.

There is also the question of renewables such as PV being very much cheaper to produce in developing countries, such as China, due to manufacturing costs being so low. This had undoubtedly led to greater uptake of PV in developed countries as many individual consumers have voted with their wallets and bought the cheapest ‘green’ technology available. But this ‘market’ freedom has environmental and human costs, such as a non-regulated wages, no health and safety culture and possible environmental pollution in the production cycle. The same might be said of some biofuels grown, for Western vehicles to use, in the developing world. That booming market has deepened some local environmental problems.

That is not to say competitive markets can’t play some role- for example they can sometimes provide incentives for innovation. But innovation has hardly been stifled under FITs: Germany has developed a lot of novel wind and PV technologies and built major new expanding industries, whereas that can hardy be said if the UK- while we still have a research base (just!), we have no major renewable energy technology manufacturing plants and have to import technology from countries like Germany. Maybe a bit of green protectionism wouldn’t be amiss, although really what would make more sense is a FIT for all renewables, not just the tiny one planned for small scale projects. Then the UK might take a lead and win some exports as well.

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