How Can Trade Policy Maximize Benefits From Clean Energy Investment?

Wind and solar projects typically involve a mix of components manufactured in a few places at very large scales, but also components that can be produced in many countries. Given the boom in the construction of renewable energy projects, national governments are increasingly keen to maximize local economic benefits. In recent years, they have progressively used a range of instruments, including trade policy measures such as local content requirements or import tariffs, to incentivize domestic production.

This paper assesses the role of trade policy in stimulating local capacity while avoiding increases in project costs and consumer prices that can delay the renewable energy transition.