Will trade wars scupper renewable energy?

The world invests more than US$ 1 trillion a year in energy, according to Sustainable Energy for All, an initiative set up by UN Secretary-General Ban Ki-moon; yet much of this money is invested in outdated and polluting systems.

The use of coal, oil and gas for energy continues to grow. The 2012 report Trends in Global CO₂ Emissions – produced by the Netherlands Environmental Assessment Agency – reports that in 2011, coal consumption increased globally by 5.4% and accounted for over 30% of global energy consumption, the highest share since 1969.

Investment in renewable energy production has been growing for years. According to the Global Trends in Renewable Energy Investment 2013 report, US$ 244 billion was invested in renewable energy in 2012, a fall of 12% compared to the previous year and the first time since 2006 that investment failed to grow year on year.

There were several reasons for this drop, including weakened US and European markets, the drastically falling price of solar products, overproduction, trade tensions and instability in the policy regime for renewable energy in important developed economy markets.

It is clear that a rapid scale up of renewable or sustainable sources of energy is urgently needed to reduce dependence on fossil fuels. Lower carbon transport fuels and more efficiency in energy use can both play a part. What is essential, though, is that the use of green energy is vastly expanded.

Currently, however, the market is grossly distorted and full of barriers for scaling up renewable energy technologies, and, crucially, at the international level, there are no rules that are specifically designed for trade in energy or in those technologies specifically designed for energy supply.

The playing field is still wildly uneven. Estimates of subsidies to fossil fuels vary because there is no international monitoring framework. But the Global Subsidies Initiative believes the figure to be as high as US$ 600 billion a year – around three times the amount provided to clean energy technologies. The Organisation for Economic Co-operation and Development (OECD) estimates that merely removing these subsidies by 2020 could lead to a reduction of 10% in greenhouse gas emissions by 2050.

Despite the barriers, the International Energy Agency (IEA) forecasts that renewables will become the second-biggest source of power generation by 2015, and will vie with coal as the primary source by 2035. To reach this position, however, the IEA estimates that renewables will need subsidies totalling US$ 4.8 trillion up to that date. In the meantime, it warns that fossil fuels will remain dominant in the global energy mix, supported by subsidies.

To address this historic challenge, in 2011, three institutes – the International Centre for Trade and Sustainable Development (ICTSD), the Peterson Institute for International Economics (PIIE) and the Global Green Growth Institute (GGGI) – launched the Sustainable Energy Trade Initiative (SETI). The aim of the initiative is to boost global trade in ways that also increase the supply and use of sustainable energy goods and services. In particular, those behind the initiative seek to establish a sustainable energy trade agreement (SETA).

Ricardo Meléndez-Ortiz, Chief Executive of the International Centre for Trade and Sustainable Development (ICTSD), explained that this is a highly complicated area, but there is one clear imperative – the need to cut down on fossil fuel subsidies in order to give renewables a fair and competitive chance in the market.

For more information, read the latest edition of Green Light, a monthly newsletter from the Global Agenda Council on Governance for Sustainability.

Image: A wind turbine is seen over the panels of a solar power plant in Incheon, South Korea, on September 30, 2010. REUTERS/Jo Yong-Hak