Could trade policy measures enable a rapid dissemination of sustainable energy goods and services, given the reality of the widespread use of both fossil-fuel subsidies as well as clean-energy incentives? With the help of a computable general equilibrium modelling exercise, this paper attempts to show what happens to a number of economic and environmental variables such as exports and imports, carbon emissions, energy and electricity prices, employment generation and income, when import tariffs as well as local content measures (LCRS) for renewable energy equipment are removed under different scenarios. A similar exercise is conducted for ethanol involving the removal of import tariffs with and without removing ethanol subsidies.
The analysis indicates that local-content requirements (LCRs) that restrict imports and FITs may not be required for the sustained growth and trade of renewable energy equipment. Trade reforms can contribute to expanding trade in these products, thereby helping to facilitate the eventual expansion of renewable energy. The paper confirms the importance of trade reform as a ‘low-hanging fruit’ that ought to be tapped early on by policymakers, given the challenges associated with other important but significantly more difficult measures to promote renewables and address carbon emissions, such as fossil-fuel subsidy reform.
