Green protectionism will slow the energy transition

Dec 7th 2023

delegates from 118 countries have pledged to raise global renewable-energy capacity to 11,000 gigawatts (gw) by 2030, up from 3,400gw last year. But the task of adding roughly 1,000gw every year—almost as much as the entire generating capacity of America

Rising costs, caused partly by higher interest rates, have led developers to abandon once-profitable projects. Five offshore-wind developments have been cancelled in America this year.

There is a bigger problem, too. At a meagre 6%, the average return on capital for solar and wind developers will not entice the $8trn or so of investment needed over the rest of this decade to honour the 11,000gw pledge.

One obstacle is slow approval, which delays projects for years and can needlessly tie up capital, lowering returns.
European Union rules already require permitting to take no longer than two years, a limit that member states often breach.

Another obstacle is that, not counting China, too little development is happening in the global south, even though the demand for electricity there is surging.

One fix is to blend in government funding that takes on some of the risk.
Just Energy Transition Partnerships, which Western governments have set up over the past two years, and the $30bn climate fund announced by the United Arab Emirates on December 1st. Yet the sums involved remain too small, and earlier deals have been beset by backsliding and delays.

A last obstacle is protectionism, which raises costs and threatens shortages. Solar panels are already more than twice as expensive in America as elsewhere, mostly owing to anti-dumping duties on Chinese suppliers.

America is not alone. Last month the European Parliament passed the Net Zero Industry Act, which sets domestic-content thresholds for bidders in public auctions. The European Commission is considering investigating Chinese turbine-makers, which it sees as a threat to local industry because their wares are much cheaper.
It leads to lower returns, higher prices for power and more broken promises over decarbonisation.