JOHN KRENICKI, VICE CHAIRMAN OF GE AND PRESIDENT & CEO OF GE ENERGY
When the UN climate summit in Copenhagen came to a close in 2009, both sides of the climate change debate took to the streets to proclaim victory. Their reactions showed the reality of the situation—the summit represented progress, but many questions remain. We have a long, long way to go.
Whether you believe the climate summit was a success or a disappointment, world governments continue moving toward creation of a cleaner, greener global economy. As a follow-up to Copenhagen, 55 countries, including the world’s largest emitters—China, the E.U., India, Russia and the U.S.—recently submitted greenhouse gas reduction targets to the UN.
But, necessary as they are, policy commitments alone will not alter the emission of greenhouse gases. Private investment must be part of the solution if we expect lasting change to take hold. The energy industry requires trillions of dollars of investment, and projects are measured not in days or months, but in decades. As governments attempt to deliver on their promise of lower greenhouse gas emissions and a more diverse and secure energy mix, their efforts are increasingly stymied by an obstacle fully within their control: green protectionism.
Attempting to stimulate their economies, some governments have crafted sophisticated non-tariff barriers and standards that favor domestic manufacturers, or have mandated that domestic industries purchase goods and materials manufactured within their borders. Such policies exist and are being enhanced in every corner of the world.
Investment in multiple manufacturing facilities around the world often makes good business sense, and drives economic growth in both the country where the investment is made and the investing country. But these decisions should be made for sound business reasons, not forced by government fiat. Otherwise, the benefit of scale is lost, and the imposing countries incur incremental financial and environmental burdens. The mercantilist approach of forced investment is actually worse than a zero sum game. It is a negative sum game for jobs and the environment.
Beyond local content requirements, buy-national policies and similar measures, tariffs—that is taxes on imports—offer a clear example of the unnecessary costs governments are imposing on cleaner energy.
Take wind turbines, for example. In China and South Korea, foreign turbines are subject to an eight percent tariff. In India, the same item is slapped with a 7.5 percent tariff. High efficiency gas turbines, imported turbines imported into Nigeria are subject to a tariff of 10 percent. In the fast growth field of solar energy, Russia imposes tariffs of 20 percent on imported solar panels. In fact, the majority of nations belonging to the World Trade Organization impose tariffs on wind turbines, high efficiency gas turbines and solar panels even as most of these countries are trying to increase the use of these products through other measures.
If we are to continue the processes initiated in Copenhagen and work to meet global environmental challenges, individual nations must do everything they can to promote clean energy deployment. The first step trade ministers should take is to remove the handcuffs of green protectionist policies and strive toward free trade in this arena—an International Green Free Trade Agreement—leading to a future of ample, affordable, sustainable clean energy.
Governments and communities worldwide are desperately seeking a path to sustainable clean energy. Just look at the numbers: In 2008, worldwide trade in wind turbines and wind turbine parts surpassed $6.6 billion. That marks a $5 billion increase in wind turbine trade since 2003. It is a substantial achievement—one indicative of strong growth and advancement in the green economy. But imagine what would be possible without tariffs, “buy national” policies and other governmental “industrial policies” cloaked as environmental leadership.
When we can compete on a level, transparent and low-cost basis, investments and jobs will flow to the economies of scale, efficiencies will grow, and costs will fall—spurring more job creation. It is not often noted, but most of the jobs created will be in the areas of installation, logistics and service, generated wherever cleaner energy projects are deployed. In fact, cleaner energy could become the dominant job-creating industry of the 21st century, and the companies—and countries—that move quickly to seize that opportunity will reap the rewards.
The green energy challenge, like all challenges of scale, is best met through true international cooperation. Yet without a concerted international effort, the opportunity to achieve scale and deliver cost-competitive solutions will be delayed or lost.
In his confirmation hearing before the European Parliament, EU Commissioner for Trade, Karel de Gucht, called for a coalition of countries to abolish taxes on clean energy products. Through the creation of an International Green Free Trade Agreement, and removal of existing and emerging barriers to green trade, the international community can quicken the pace toward our shared vision of a future based on cleaner, more affordable greener energy.