Governments have established an elaborate network of restrictions around clean technology, while fossil fuels remain largely exempt.
By David Fickling
David Fickling is a Bloomberg Opinion columnist covering energy and commodities. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.
After the most sustained bout of inflation in a generation, you’d think governments would be looking to do everything they could to reduce the prices of consumer goods. When it comes to energy, just the opposite is happening.
President Joe Biden’s administration is considering further lifting 27.5% tariffs on Chinese electric vehicles to help prop up a flagging domestic industry, Bloomberg News reported last month. That follows the European Union launching an anti-subsidy investigation of the same sector and threatening countervailing levies on China’s EV exports on top of the current 10% duties. Earlier in December, Washington also introduced rules to stop carmakers who use Chinese batteries getting access to tax credits.
Given all those levies, it’s hardly surprising that Chinese-made EVs cost roughly twice as much in Europe as they do in their home market, and are mostly absent from roads in North America. US and European auto executives in recent months have been quick to blame the scaling back of their own electric transition plans on flagging consumer sentiment. That sentiment might be a whole lot different if the public was allowed to buy the cheap EVs that are available where they’re not being held back by protectionist barriers.
Similar hurdles confront Chinese exports of wind-turbine towers to the EU and solar panels to the US. With populist politicians polling strongly ahead of elections this year in both regions, you shouldn’t be surprised to see the taxman extend his remit even further.
The most perverse thing about this insidious trend is that it’s precisely the perceived importance of the energy transition that’s holding it back. Trade barriers aren’t being raised in the name of constraining the rise of EVs. Instead, they’re being erected with the promise that they’ll help to establish a competitive new domestic clean-tech manufacturing sector.
The trouble is, it’s not working. The Biden administration’s Inflation Reduction Act contains rules mandating that new EV chargers receiving federal funds must be made in the US. The result hasn’t been a boom in charger factories, but a bust in charger installations. Two years after the act was passed, hardly any of the stations have been built, one of the main reasons that drivers cite for putting off the switch to electric.
It’s a similar story in India, which has levied a 40% tax on solar module imports since 2022 to encourage domestic production. The tariffs have only succeeded in slowing the pace of the country’s renewable transition. Imports have surged to the point where they comprise about two-thirds of supplies, according to BloombergNEF, but connections of new solar generators are stalling. New Delhi is considering cutting the tariff in half to ensure there’s enough imports to meet demand, Reuters reported last year without saying where it got the information.
While an elaborate network of government restrictions are being erected around clean technology, fossil fuels remain largely exempt. Japanese cars, which are overwhelmingly powered by internal-combustion engines, pay just a 2.5% levy on imports to the US, compared to the 27.5% on China’s EVs. Solar panels in the US have an impost of 14.5% at present, while steam turbines like those used in coal- and gas-fired power plants pay 6.7%. Jet engines and coal can be imported tariff-free, while crude oil is charged just a few cents per barrel, a rate equivalent to a tenth or so of a percentage point.
It’s a further example of the way that government intervention puts its thumb on the scales to favor dirty energy, at a time when things should be moving in the opposite direction. The US opted out of a Dutch-led initiative at the COP28 climate summit in Dubai last month to eliminate fossil fuel subsidies, which the International Monetary Fund estimates are running at about $1.3 trillion a year.
Governments are discouraging exactly the actions they need to get themselves to net zero, the Guardian newspaper quoted World Trade Organization Director General Ngozi Okonjo-Iweala as saying at COP28: “At the WTO, we’ve noticed that import tariffs in many countries on renewables are on average higher than tariffs for fossil fuel goods.”Top of Form
There are ways to support local manufacturing without distorting trade. The Carbon Border Adjustment Mechanism, or CBAM, introduced by the EU last year would make importers pay for the CO2 footprint of their goods. That’s a promising way to ensure that countries that have invested in low-emissions power aren’t undercut by nations that let their manufacturers pollute for free. Crucially, the policy doesn’t discriminate. To avoid the payment, exporting countries just have to put the same price on carbon that the EU does.
We want to move toward a world of zero-emissions manufacturing. To do so, we must use measures like Europe’s CBAM to make clean energy a comparative advantage for would-be exporters, while eliminating ill-considered tariffs. Only then will the global supply chains already gearing up to support the energy transition be able to flourish.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
To contact the author of this story:
David Fickling at [email protected]
To contact the editor responsible for this story:
Ruth Pollard at [email protected]
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