Trade, a dark spot in the solar world

Rahul Mazumdar | Updated on March 08, 2018

Picturesque prospects Provided tariffs of solar equipment fall   -  H Vibhu

The International Solar Alliance should work towards dismantling high tariff barriers, to further the spread of technology

A call for liberalising trade and that too on solar, could be construed as utopian, given the increasing protectionism across the globe. Nevertheless, if we are serious about leaving behind a habitable world for future generations, we must challenge protectionism in solar trade. Climate change is enveloping all of us, be it the developed or developing world.

Alliance with potential

Steps bold and at times ambitious have been taken by various countries to mitigate climate change. India has been at the forefront, along with France, in launching the International Solar Alliance (ISA) during the COP21 Climate Conference in Paris in November 2015. There is huge potential for ISA to translate the initial intent into actually making a world a better solar-lit place.

An analysis of the 121 member economies of this Alliance located in the sunshine belt between the Tropics of Cancer and Capricorn, reveals that, in 2014, only 27 of these countries were providing 100 per cent electricity access. In the case of 49 countries, mostly in Africa, the access rate was less than 70 per cent.

The irony here is that India which has set a target of 100 GW of solar energy by 2022 has been embroiled over the last few years in a dispute over imposing safeguard duties; such duties are detrimental to cost-effective solar deployment.

The main objective of ISA has been to undertake joint efforts to reduce the cost of finance and technology, besides mobilising more than $1 trillion of investments needed by 2030 for massive deployment of solar energy.

However, the scope of the Alliance could go beyond just mobilising resources for solar deployment, and could include facilitating movement of solar energy goods and services at zero or near zero tariffs.

Solar tariffs

While the cost of solar installations has been declining worldwide, it still remains high in many of the ISA economies. This is accentuated by their lack of manufacturing capacity and high tariffs on solar PV products.

For instance, most African economies have higher most favoured nation (MFN) tariffs for PV cells, modules, and semi-conductor devices, despite the fact that they have a remarkable opportunity to promote off-grid solar, given the paucity of transmission lines. Under the MFN principle, WTO countries cannot normally discriminate between their trading partners.

Island countries have among the highest MFN applied rates for solar-related products, such as photosensitive devices and solar heaters. Some of the countries across regions have tariffs as high as 35-40 per cent. However, it needs to be said that India, a large market for solar PV installations, has zero per cent tariff for photosensitive semiconductor devices, including photovoltaic cells.

Voluntary solar trade

Although galvanising investments remains high on ISA’s radar, freeing up trade of solar energy-related equipment and services should be explored. ISA members can voluntarily reduce import tariffs and non-tariff barriers on solar-related products and related services. Members could also agree on gradual reduction of tariffs over a period of time to take into account concerns of domestic producers, if any.

This exercise of reducing tariffs, would result in a plurilateral voluntary trade deal on solar energy goods and services among ISA members, bringing real benefits to trade and the environment. A plurilateral agreement is one where a group of economies come together to move forward with liberalisation in select areas. In this case the committed economies will be able to take advantage of global solar supply chains and economies of scale, while allowing massive deployment of affordable solar energy among ISA countries.

An average of $150 billion of these solar related goods has been imported by the world in the last five years.

There are a number of other advantages that such a plurilateral sustainable energy trade initiative would bring. Firstly, applied tariffs along the solar supply-chain would come down fairly fast without the need to wait for the conclusion of a binding trade agreement such as the environmental goods agreement, for which discussions between 46 countries have been in progress since 2014.

Secondly, such a deal would reduce chances of disputes over what goods to include or exclude in the final ISA trade agreement. This is because there would be a good degree of agreement among trade delegates of 121 ISA economies on what goods and services are important for the solar supply chain, even if some of these may include dual-use goods or those with non-solar applications as well.

Finally, opportunities to integrate into global solar value-chains may be opened up for developing countries. They could partner with developed ones and over time develop state-of-the-art technologies and equipment for its domestic market, as well as sell to many ISA countries with similar needs. Devising investment norms, facilitating technology know-how, and bettering trade objectives could be considered by ISA. Trade, therefore, could also be used as an instrument facilitating technology dissemination for the global good.

Benefits not an issue

With ISA being recognised as a treaty based inter-governmental international organisation in December 2017, it can galvanise support to voluntarily reduce tariffs within the ISA economies.

However, in accordance with WTO MFN obligations (according to GATT Article XXIV), such benefits would need to be accorded to other WTO members as well. Nevertheless, in this case since most of the big buyers and suppliers of solar products are part of ISA already, providing similar concessional tariff benefits to all WTO economies will not be an issue.

Given ISA’s commitments towards clean energy, and the recent uncertainty regarding the US administration on the Paris Climate, it could possibly give ISA economies an opportunity to fill this void and take a leadership position in climate change by pursuing such a trade initiative.

An agreement to reduce tariffs and non-tariff barriers on solar products and services should not be viewed as end in itself. But it can certainly be one of the solutions to achieve ISA’s own objective of scaling up solar power.

The writer is an economist with Exim Bank, India. The views are personal

Published on March 08, 2018

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