THERE are few things more calculated to strike fear into the world than an energy embargo.
The mere possibility of Teheran harassing shipping in the Strait of Hormuz – a narrow stretch of the Persian Gulf through which about a fifth of the world’s oil must pass – has sent commodities markets into turmoil since the US strike on Iranian nuclear facilities on Saturday (Jun 21). President Donald Trump then announced a tentative ceasefire between Iran and Israel on Monday.
The worries are understandable, because in the roughly 15 decades that have marked the modern petroleum era, crude has hardly ever had restrictions on commerce. Even the autarkic, self-reliant economies of Nazi Germany and Stalinist Russia never sought to impose a tariff on the black gold.
How different things are for green power. Back in 2015, when 195 nations came together to sign the Paris Agreement pledging to keep the planet well below 2 degrees Celsius of warming, there were just nine measures globally constraining trade in clean energy. As at last year, that number had blossomed to 212, according to a report this week by Ren21, a group backing renewable power. That’s one of the main reasons the world is likely to build only about two-thirds of the renewables leaders had pledged to connect by 2030.
The barriers to fossil energy imposed for just five months during the 1973 oil embargo are still remembered decades later. And yet we have spent 10 years building a similar set of restrictions against clean power, in the midst of an escalating climate crisis – and most of us barely give it a moment’s thought.
One reason is that the shackles on green energy are justified with the noblest of misguided intentions. A government promising to support domestic manufacturers of solar panels, wind turbines, and lithium-ion batteries sounds like a climate leader. That’s especially the case when rapacious Chinese competitors seem on the brink of monopoly.
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In practice, such measures mostly just slow the necessary work of decarbonisation. Local clean energy manufacturers are perpetually begging for support. It’s quicker, cheaper and easier for governments to quieten those complaints by stifling competition on the supply side of the industry with levies and regulations, such as the 3,521 per cent tariff the US is putting on Cambodian photovoltaic panels. Carrying out the more effective policy of stimulating demand via subsidies and mandates is harder.
Such rules are legion. Ghana, for instance, requires a rising share of local content in renewable energy. Almost anyone working on such projects – manufacturers, contractors, lawyers, bankers, truckers and even caterers – must demonstrate their compliance by applying for a US$3,000 permit, more than a typical annual salary. Unsurprisingly, that’s deterred development, leaving Ghana with just 188 megawatts of installed solar. That’s less than what Malta, one of the world’s smallest countries, has.
Indonesia has similar rules, intended to foster a local manufacturing sector and originally targeting a 90 per cent share of local content in solar projects by 2025. That level was clearly impracticable and the requirement was cut last year to 20 per cent, but the damage had already been done. Despite having sufficient land to power all of South-east Asia with solar, Indonesia is currently generating less than tiny Singapore or frigid Estonia.
Such trade restrictions can have a limited use in fostering infant industries, but in general they’re applied too widely and removed too rarely, even when it’s clear they’re not working. The number of regulations has doubled since 2022, according to Ren21.
This is desperately counterproductive. We tax and over-regulate things we want to discourage. With prospects of limiting warming to 1.5 degree Celsius already pretty much out of reach, we should be doing everything we can to make clean energy cheaper, and fossil energy more costly.
We’re instead doing the opposite. Even under former president Joe Biden and after the invasion of Ukraine, the US imposed higher trade barriers on Malaysian solar panels made with Chinese materials than it did on Indian diesel made with Russian crude oil. When President Donald Trump’s “Liberation Day” tariffs were announced in April, fossil fuels were one of a handful of sectors exempt.
Such special treatment for oil, gas and coal is the tic of a nervy addict in fear of withdrawal. Oil embargoes are so feared because without an uninterrupted flow of crude, our non-electric trucks, trains, work vehicles, and cars would grind to a halt in a matter of weeks, threatening punch-ups at petrol stations and economic calamity.
If China stopped exporting photovoltaic panels tomorrow, however, hardly anyone outside of the solar industry would notice. The sun would still shine, and your rooftop would still generate electricity. That’s, to be clear, a virtue of this cheap, clean, resilient technology. But the lack of immediate blowback means that ill-considered policies hampering the growth of renewables can feel consequence-free.
One virtue of crises is the way they concentrate the mind. The 1973 embargo sparked a boom in alternatives to imported Middle Eastern oil, from coal and nuclear power to North Sea, Alaskan and Soviet petroleum. Russia’s 2022 invasion of Ukraine similarly drove the European Union to redouble efforts to switch to renewables. If there’s one silver lining from the current grim geopolitical situation, let’s hope it will prompt the world to start dismantling this metastasizing embargo on clean energy. BLOOMBERG
