This article is part of a Synergies series on climate and trade curated by TESS titled Trade Cooperation and the Climate Crisis: Where Can the Trading System Contribute? Any views and opinions expressed are those of the author(s) and do not necessarily reflect those of TESS or any of its partner organizations or funders.

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Rapid transition to clean energy across our economies is essential for meeting climate change targets. Commitments and plans are in place, including the global pledge to triple renewable energy capacity globally by 2030 [clause 28 (a)] made at the 2023 UN Climate Change Conference (COP28), commitments to end the sale of new gasoline and diesel cars by 2035 made by the EU and other jurisdictions, and a whole host of national government and corporate plans (for example a corporate commitment to using 100% renewable electricity).

The news is full of articles describing plans to extract more lithium and other critical minerals, build new factories to produce the batteries which drive electric vehicles (EVs), and support the manufacture and deployment of solar photovoltaic (PV) and wind (for example the US Inflation Reduction Act (IRA) and the European Green Deal).

While a good first step, these plans are insufficient without implementation. The clean energy transition needs all renewable project developers and EV buyers, throughout the world, to be able to get the clean energy goods and services they need—at good prices and without unacceptable delays—now, next year, and in five years. For this, we need resilient international supply chains.

Clean energy supply chains are complex and interdependent, crossing many borders. These supply chains face the usual resiliency challenges, including, for example: higher costs of raw materials and other key inputs; unexpected closures at key factories; transport unavailability and rising costs; labour disputes; lack of availability of project developers and installers; weather-related disruptions; and investment shortages in new capacity.

The case of wind is instructive. The Global Wind Energy Council (GWEC) notes that bottlenecks are already present in parts of the global wind value chain (for example the availability of rare earth minerals in Europe and North America) and are becoming more severe in inputs such as gearboxes and castings as well as workforce availability. The International Energy Agency is among the organizations taking an increasing interest in critical minerals, and its Global Critical Minerals 2024 Outlook concludes that “today’s well-supplied market may not be a good guide for the future, as demand for critical minerals continues to rise.”

Beyond these considerations, there are two other specific challenges which may put the timely supply of clean energy goods and services at risk.

First, the growing clean energy sector is an opportunity for countries to generate economic value through increased mining, mineral processing, manufacture, and project development. Although imports of solar panels, EVs, or critical minerals may be available, countries may look to restrict or make these more expensive in order to develop their own local capacity (see for example South Africa’s plans to localize production across renewables in response to rising imports). Capacity may take several years to come online or may not be successful (see for example the problems currently being faced by the Northvolt battery manufacturing plant in northern Sweden).

Second, some countries have concerns about either the concentration of supply chains (i.e. too much reliance on a limited number of suppliers) or do not wish to import from certain countries because of concerns over trade imbalances or for geopolitical reasons (for example US concerns over unfair trade practices in China).

Restrictions on imports are likely to slow down the deployment of clean energy technologies and therefore constrain climate mitigation in the short term. In the longer term, efforts to increase local manufacturing may, depending on their success, increase global supply.

Political realities mean we face a trade-off. Resilient clean energy value chains are needed to support ambitious climate action. But they must also account for local manufacturing ambitions and for geopolitical tensions.

Solar PV deployment has been a huge success story in recent years, exceeding expectations and with high-quality panels available at competitive prices. Chinese manufacturers have built a dominant position and have rapidly scaled-up production to meet demand in their huge domestic market and increasingly for exports. Despite this growth, the profit margins of several major Chinese suppliers are currently low. India (from 2018) and the US (from 2012) have at times imposed significant import tariffs on Chinese panels, citing reasons including unfair competition (i.e. a view that production is and/or was subsidized).

Wind has a different dynamic, with a lack of standardization holding back profitability. Manufacturers across the world are still innovating rapidly while demand and production costs are both volatile, and regulatory requirements are often highly variable between different jurisdictions.

Expanding and strengthening electricity grids and storage is critical for increased renewables deployment. This expansion relies on large amounts of copper, aluminium, and steel and calls for higher levels of investment. The Covid-19 crisis showed that certain key components such as transformers can be in very short supply.

Electric vehicles are markedly different than traditional petrol- or diesel-powered cars, with some established manufacturers have serious concerns about their prospects. In Europe, demand for “traditional” new cars fell in 2024 and demand from key export markets, notably China, has weakened. Demand for EVs has not grown as quickly as expected and competition from China in particular is intense. After a split vote among its member states, the EU recently decided to impose additional import tariffs of up to 35% on Chinese EVs, with China launching a dispute complaint against these tariffs at the World Trade Organization (WTO). In May 2024, the US increased its tariffs on imports of Chinese EVs to 100% as it looked to protect its industry.

While battery production must continue to be hugely scaled-up, there is currently excess global capacity and prices are on a strong downward trend. Coupled with rapid innovation in battery chemistry (for example LFP batteries do not require the nickel or cobalt that have been the subject of concerns around production capacity as well as how and where these minerals are mined), the barriers to entry for potential new producers are very high. Yet many countries still wish to expand their production, often motivated to become less reliant on imports.

Countries with critical mineral resources are actively looking to add value in addition to mining. For example, Indonesia bans the export of raw materials (ores containing the minerals), requiring that they must first at least be processed (i.e. the mineral extracted into a higher purity form). Within the most advanced economies, the US offers significant incentives for new mining and processing.

As noted, clean energy supply chains are inherently complex and interdependent. No country is self-sufficient across all of them, nor is any country able to fully control them.

While markets for clean energy goods and services are growing rapidly and countries around the world have a strong desire to increase their share of the value created within them, where this capacity can be increased must be assessed carefully. Solar panel manufacture is relatively mature and competing with established manufacturers already producing at scale requires massive investment only available to the largest economies (for example India and the US). Even then, it may not be fully successful. Wind turbine blades and rotors are high-tech products and a number of established producers are competing in what remains a relatively small market, where links between local deployment and local manufacturing can be strong.

Battery and EV production also benefit considerably from economies of scale. While countries with mineral resources may wish to move further up the value chain, notably through processing, attracting investment and meeting local planning and environmental regulations are often significant challenges. Moving beyond processing into clean energy component manufacturing is not easy: local feedstock availability is only one factor influencing investment decisions to manufacture components.

Smaller economies with relatively low geopolitical influence have a different set of opportunities than larger economies. For all countries, options should focus on areas where they have comparative advantages, including existing capacity and supply chains in linked industries such as parts of mechanical or electrical engineering or semiconductor production. The key strategy is to build up existing linkages, rather than jump immediately into advanced component manufacturing. This strategy has allowed countries including Malaysia to become advanced component manufacturers.

Options should be evaluated against likely economic, environmental, trade, and geopolitical outcomes. Countries may wish to establish less profitable industries where they have concerns over supply chain concentration or do not wish to import from certain countries; but this could commit governments to long-term public support to keep these industries going.

Whether or not countries seek to increase local production, the deployment of renewables offers new job opportunities to all economies, ranging from project design to construction, operation, and eventual decommissioning. There are typically more jobs in renewable power generation than in the fossil fuel generators they replace but in many countries there are capacity gaps in the services needed for project development, which need to be met by bringing in foreign expertise. Building a strong domestic services sector can lead to export opportunities.

Industrial policy (i.e. government support to build domestic capacity in a particular industrial sector) is back in fashion. It is recognized that industrial policy has played a significant role in China’s successes in clean energy markets including solar PV and EVs. The EU (Green Deal), India, and the US (IRA) are among countries actively intervening in clean energy value chains.

There is a vast literature on industrial policy, which shows that it is more likely to succeed if it is based on comparative advantage, is “horizontal” (i.e. supports several sectors) rather than “vertical” (i.e. focused on one particular sector, which brings inherent risks), and is linked to other aims and policies (for example energy policy). But the literature also shows that industrial policy is likely to result in higher local prices, lower availability, and less choice, and it can also trigger wider trade disputes. Studies have concluded that there is nothing special regarding clean energy sectors; industrial policy has similar challenges as in other sectors of the economy. Groups including the GWEC are advocating for regional industrial policy, which would build on existing regional trade and economic links. Finally, there is the view that while industrial policy may not work as hoped for, if a country does not look to support its clean energy sectors it will not gain market share.

“Green” subsidies, local content requirements, and import taxes are some of the measures commonly taken to bolster local industry against foreign competition. Within critical minerals, export bans, quotas and taxes, and local content requirements are relatively commonly employed. Countries may also seek to make investments more attractive through tax advantages or other mechanisms and may look to set up joint manufacturing or assembly plants with established foreign companies. They may further lobby for increased climate finance to help expand the money available for investment.

It is again important to evaluate the policy options against their likely economic and environmental impacts and how they might affect trade and wider international cooperation. The EU’s complaint against Indonesia’s export restrictions on nickel ore is an example of how tensions between importers and exporters can escalate, and we may see many more.

More widely, one country’s industrial policy can undermine investment and development in other countries, especially if the country implementing the policy is large. Strong debate around the EU’s Carbon Border Adjustment Mechanism (a charge levied on certain imports based on their carbon content) has shown the need to account for impacts on third countries and to minimize these by design, including through consultation during the policy design process.

Each country narrowly pursuing its own objectives will not result in the best outcome globally. Reaching such an outcome will require international cooperation, aiming to maximize global climate ambition—notably the amount of renewable electricity installed and EVs purchased—in both the short and long term. This cooperation should also aim to satisfy ambitions to increase local production and take account of countries’ concerns regarding supply chain concentration and sourcing. There are clearly conflicts between these overall objectives and individual country ambitions. These could be resolved through either formal or informal routes.

Considering formal mechanisms, the large number of preferential trade agreements (PTAs) (there are over 350 PTAs plus thousands of bilateral investment treaties) increasingly include provisions relating to sustainable development and critical mineral access (for example the latest EU PTAs include critical mineral chapters). “Special and differential treatment” provisions can be used to favour production from developing countries, for example in the manufacturing of non-specialized components by smaller countries.

The WTO is increasingly focusing on resilient supply chains and its experience during the Covid-19 pandemic has lessons for clean energy. Discussions on industrial policy are also underway at the WTO; laying out principles as to what practices would be acceptable would be helpful (for example in the design of “green” subsidies). Finally, the WTO’s core aim of keeping trade as free as possible internationally will generally be more supportive of climate ambitions than a more fractured system.

In addition, groups of countries are increasingly signing agreements around critical minerals, for example India and the US or the EU and partners through the launch of the Minerals Security Partnership Forum. China’s Belt and Road Initiative has since 2015 been linking Chinese foreign investment to infrastructure development, including in mining and metals.

But these partnerships generally bring together like-minded countries. Informal dialogues would further look to bring together parties with opposing views or those in strong competition economically or geopolitically, including those economies with the most influence on clean energy value chains (China, the EU, India, and the US) and other key suppliers or consumers (for example countries in Southern Africa and Southeast Asia).

Informal dialogues would allow countries to better understand each other’s positions and abilities to compromise, helping to avoid the more extreme and damaging policies and develop scenarios or approaches of mutual benefit. They would help set out the “rules of the game” within which private sector companies can cooperate, grow, and create value chain resilience through cross-border joint ventures and investment. Dialogues could be held on the fringes of international meetings (for example APEC, BRICS, G20) or in bespoke events in neutral venues (for example in Geneva, which has a long tradition of hoisting such initiatives).

In short, cooperation across clean energy value chains is urgently needed if we are to maximize climate action while taking into account the realities of national ambitions to increase local production and domestic sensitivities on acceptable supply chain concentration and sourcing.

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Peter Wooders and Tom Moerenhout are co-founders of the Geneva Platform for Resilient Value Chains (GPRVC), housed at the Centre for Trade and Economic Integration (CTEI) of the Geneva Graduate Institute. The GPRVC helps to solve the critical issues in clean energy value chains (Solar PV, Wind, Critical Minerals, Batteries, Electric Vehicles, Grids and Storage).

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Synergies by TESS is a blog dedicated to promoting inclusive policy dialogue at the intersection of trade, environment, and sustainable development, drawing on perspectives from a range of experts from around the globe. The editor is Fabrice Lehmann.

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