Over the past few years the World Trade Organization (WTO) has been called upon to investigate cases of domestic content rules (DCR, also known as local content rules or LCR) in renewable energy policy. In a more recent case, Ontario was accused of violating trade law by requiring renewable energy developers to purchase a designated amount of locally sourced materials for projects as part of its feed-in tariff (FIT) program. In December 2012, the WTO found these practices to be illegal and upheld its ruling in May after an appeal was issued. Meanwhile, many countries still incorporate similar rules in their incentive programs.
Renewable Energy World asked industry executives to share their thoughts and insights on this controversial question:
Do domestic content rules, those that require projects to use a certain amount of services or material that is produced locally, help or hurt the renewable energy industry?
We encourage you to lend your own voice to the discussion in the comments below.
Steve Sawyer, Secretary-General, Global Wind Energy Council
The latest ruling by the WTO on the Ontario FIT is welcomed by the wind industry. In 2012, wind energy grew by nearly 20 percent in Canada, driving over €1.49 billion ($1.95 billion) in investment and creating over 10,500 person-years of employment. The wind industry in Canada installed 936 MW in 2012, bringing total installed capacity to 6.2 GW by the end of the year. We expect a market in the vicinity of 1.5 GW for 2013 and in that same range for the next few years, as Canada seems well on track towards the industry target of 12 GW by 2016. Ontario remains by far the largest provincial market, followed by Quebec and Alberta.
Legal recourse to national practices that distort trade is time-consuming and introduces significant uncertainty for clean energy investors and manufacturers. In the past decade, we have seen a number of countries use policy mechanisms that include LCR provisions to promote green industry.
Current over-capacity in wind turbine manufacturing means that fulfillment of LCRs merely exacerbates an already severe problem. Ideally, we would like unfettered trade in renewable technologies, but we’re a long way from that. But perhaps a middle ground could be found.
The LCR approach for promoting domestic production and employment opportunities can be brought about by a positive incentive scheme, perhaps incentivizing manufacturing tax credits, or an adder on top of the FIT for locally sourced components. But in the interim, the top-down enforcement of LCR is likely to do more harm than good for both the local and the international wind industry and our outlook for a sustainable clean energy future.
Mark Bissegger, Analyst, ClearSky Advisors
Are domestic content requirements (DCRs) good or bad for the renewable energy industry? That depends, of course, on who you ask. Either way, DCR is here to stay. A protracted dispute over DCR with no clear resolution, however, will be bad for the industry in the long-term.
Whether we like it or not, DCR will be a defining feature of renewable energy procurement for the foreseeable future. Countries will always intervene to protect their own energy interests, and DCRs provide a perceived benefit to the politicians and bureaucrats that introduce them. Those benefits usually consist of some combination of the following:
- Cheaper/more reliable electricity during peak loads.
- Increase domestically produced electricity for energy security.
- Increase employment, innovation, and industry capabilities domestically.
- Reduce greenhouse gas emissions.
DCRs generally increase costs (hurting #1 above) but help create employment and domestic energy capability (contributing to #2 and 3 above). As such, in many jurisdictions, DCRs provide the necessary political impetus to promote local solar development, which, proponents argue, also helps #4 above.
Disputes over DCR may be necessary to protect interests and a natural element in energy trade. But disputes must be resolved in a reasonable amount of time. If disputes over how countries can best protect their interests in renewable energy development and procurement are allowed to drag on indefinitely, the resulting uncertainty will hurt the industry more than the additional costs of DCRs ever could on its own.
Yogesh Khandelwal, President and CEO, geoAMPS
The renewable energy industry is both global and local. Individual communities seek the advantages of economic development, jobs, growth of the tax base, and additional revenue for schools, infrastructure and emergency services. The global community is focused on economic development, but also sees the advantages of reduced carbon emissions that are blamed for climate change.
This is what makes the WTO ruling against Ontario’s DCR so problematic. To advance the global goal of increasing renewable energy, local needs and concerns must be respected.
While some will argue that everyone should embrace the benefits of renewable energy, the reality is that this is not the case. Wind projects especially are opposed in some communities, even at the neighborhood level. This can force lengthy project delays or abandonment. Adversarial relationships won’t achieve ambitious goals for expanding renewable energy.
The WTO ruling jeopardizes Ontario’s robust program of installing more than 5,600 MW of new wind energy by 2018. Ontario officials say that the program would create tens of thousands of jobs, attract $16.4 billion in private investment and contribute more than $1.1 billion of revenue to municipalities and landowners in the form of taxes and lease payments.
Ultimately, it will be local communities, not international intervention, that drive the transition from reliance on fossil fuels to utilization of renewable sources to meet the increasing need for energy on a global scale. Local benefits, such as those projected for Ontario, are real incentives to advancing renewable energy, while the WTO’s ruling is restrictive.
Mike Dooley, VP of Marketing, AE Solar Energy
Advanced Energy doesn’t view local content laws as having a positive or negative impact on the long-term demand or adoption of renewable energy in a given market. Local content measures on their own are designed to drive local investment and job creation. Any market impact is short lived and limited to the supply side while manufacturers ramp up capacity to meet local content requirements. As a global company, we comply with local content requirements in strategic markets but also believe there is value in having an organic local presence in the regions we service to better meet the needs of our customers and partners.
Lead image: Wind farm via Shutterstock