Growth in Renewable Energy Market
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Renewable energy sources will play a much greater role in the global energy supply in this century compared to conventional energy sources. The urgent need to combat global climate change has been one of the main factors behind renewable power expansion. Under the 1997 Kyoto Protocol, OECD (Organization for Economic Cooperation and Development) member states are committed to cut their Greenhouse Gas (GHG) emissions by an average of 5.2%. Renewable energy expansion worldwide has been driven by government policies to encourage renewable energy. These incorporate a range of financial incentives including investment grants, premium tariffs, local content requirements, import tariffs and renewable energy targets with the aim of making a contribution towards the reduction of GHG emissions. Energy supplies derived from renewable energy are currently undergoing a phase of expansion worldwide. The share of renewable sources in the total global installed capacity was 4.9% in 2009.
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The domestic content requirements imposed in China in 2006 boosted its renewable energy sector considerably. It resulted in increased foreign investment as well as the setting up of local renewable energy equipment facilities. In 2009, China overtook the US to lead investments in the global clean energy sector, with an investment of approximately $34.6 billion. This
increase in China’s renewable energy investment was mainly due to the restrictions imposed by China’s government relating to domestic content requirements, which restricted the developed markets in exploring China’s emerging market.
The local content encouraged major market players from developed countries to invest in China’s renewable market. The market share of China’s domestic players also increased due to joint ventures with foreign players to supply renewable energy equipment for the upcoming renewable power facilities in the country. With local manufacturers focusing on export markets and to improve trade relations with other nations, the government has excluded this “local content” restriction from the China’s maturing renewable power market. However, Ontario and India followed this growth market strategy of China with the introduction of a “domestic content requirement” in its wind and solar power sectors. Besides, the US also implemented Buy American Act for government
procurement of products for public projects in varied sectors, including renewable energy.
The US, European Union (EU) and Brazil also encouraged their domestic biofuels market by imposing trade restrictions on imports. The trade restrictions were in the form of import tariffs, advalorem taxes and so on. The EU indirectly restricted the entry of biofuels produced in tropical countries. In this context, international trade in biofuels is being hampered and governments are discouraging competition in their domestic market by restricting the entry of foreign players.
Renewable Policies Violating WTO Agreements
As the renewable power markets of developed countries have already suffered from various Chinese laws, these countries do not want to further risk affecting their potential growth due to similar restrictions by other regions. Against this backdrop, China’s laws and the Ontario law are being challenged by the US and the government of Japan, respectively. Furthermore, Brazil is planning to protest against US bioethanol import tariffs in the WTO (World Trade Organization), if it revises the current tariffs. Such region-specific laws, if introduced by any other government, are expected to face WTO allegations in the future as they will affect trade-related investment measures globally.
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