They say President Joe Biden’s strategy imperils U.S. jobs and represents a potentially illegal end-run around Congress.

Critics are calling on Biden to halt mineral negotiations with the European Union and other nations while also slamming a recent mineral deal with Japan. The Biden administration insists that its strategy to boost supply chains among allied nations is the most potent counter to Chinese dominance over global minerals.

At issue is whether Biden should prioritize domestic mineral production and ensure producers in the United States — not manufacturers in foreign countries — reap the benefits of a coveted EV tax credit, known as 30D. The credit was included in last year’s Inflation Reduction Act.

Now, the Treasury Department is in the hot seat as it prepares to screen new trade deals and determine whether the pacts allow access to $3,750 in U.S. tax credits for EVs produced with minerals extracted or processed in partner countries. The mineral negotiations represent a marquee example of the threat Biden’s clean energy pursuit poses to other key administration policy priorities, most notably the rapid expansion of domestic manufacturing.

“They have three goals here,” Bill Reinsch, a trade expert at the Center for Strategic and International Studies, said of the Biden administration. “One is to facilitate the transition to green technology. The second one is to enhance domestic manufacturing and jobs. And the third is to do it in a way consistent with trade law and international trade rules. They can’t do all of those at the same time.”

Minerals such as lithium and cobalt are essential for today’s fleet of EVs. And experts agree that mineral production and refinement will likely form the backbone of the clean energy economy in the future and the millions of jobs that come with it. Minerals are also necessary for a long list of medical devices, smartphones and other staple products.

Meanwhile, compliance with the U.S. EV credit is based on mineral and manufacturing sourcing mandates designed to counter China by strengthening supply chains in the United States and nations with which the U.S. has trade agreements.

But critics are digging in for a fight. They’re challenging the Treasury Department’s loose interpretation of a “free-trade agreement” in the Inflation Reduction Act’s text.

“There’s enough noise to suggest Treasury is going to face some significant challenges in using this broad brush to redefine what trade agreements actually are, from a legal and constitutional standpoint,” Rich Nolan, president of the National Mining Association, a U.S. lobbying group, said in an interview.

Nolan said the mining group is “pushing the administration to bring those tax incentives home, so that those materials come from U.S. mines, from mining communities mined by American miners.”

A U.S. Geological Survey study released in January found that the United States is 100 percent import-reliant on 15 critical minerals, including minerals used in EVs like graphite and manganese. The U.S. remains more than 95 percent import-reliant on rare earths and titanium, while American companies import more than a quarter of lithium used in manufacturing, according to the study.

Another recent assessment from Securing America’s Future Energy, which promotes domestic energy production, laid out the Chinese dominance of global minerals in stark terms.

“Chinese-owned companies have strategically purchased stakes in major mineral deposits around the world, control anywhere from 60 to 100 percent of processing (depending on the mineral), and produce upwards of 70 to 90 percent of the world’s battery components,” the group said in a March report.

Talks ‘in the pipeline’

In March, Biden and European Commission President Ursula von der Leyen launched negotiations over a “targeted critical minerals agreement” that will “count toward requirements for clean vehicles in the Section 30D clean vehicle tax credit.”

The announcement came amid claims from various world leaders that the Inflation Reduction Act’s incentives violate World Trade Organization rules against subsidies that promote domestic products over imports.

The Office of the United States Trade Representative, which leads U.S. trade negotiations, said the E.U. talks are ongoing.

“We will continue to work with our EU allies to boost mineral production and expand access to sources of critical minerals while diversifying global supply chains,” said USTR spokesperson Sam Michel. The Swedish ambassador to the U.S., Karin Olofsdotter, recently told E&E News that a transatlantic pact is “in the pipeline.”

The Japanese deal, announced two weeks after the E.U. talks launched, “affirms” the two countries’ “obligation not to impose prohibitions or restrictions” on bilateral trade relations.

Now, Indonesia, Argentina, and the Philippines are signaling interest in similar deals. Even South Korea, which already shares a trade deal with the United States that was passed by Congress in 2011, is aiming for more mineral concessions.

“President Biden and I welcomed the expansion of our [bilateral] mutual investment in advanced technology, including semiconductors, electric vehicles and batteries,” South Korean President Yoon Suk Yeol said during a recent event at the White House, according to a translator. “President Biden has said that no special support and considerations will be spared for Korean companies’ investment.”

Congressional complaints

U.S. lawmakers say they’ve been kept on the sidelines.

Rep. Adrian Smith (R-Neb.), the chair of the House Ways and Means Trade subcommittee and the co-chair of the U.S.-Japan Congressional Caucus, said the Biden administration has not briefed him on any mineral trade negotiations.

“This is basically a workaround. And I don’t think it’s sustainable long-term,” Smith told E&E News. “I think there will be attempts to assert legislative prerogative.”

Never far from the spotlight on Capitol Hill, Senate Energy and Natural Resources Chair Joe Manchin (D-W.Va.) has regularly blasted the Biden administration’s implementation of the Inflation Reduction Act, saying recently he would “vote to repeal my own bill.”

Manchin has also threatened a lawsuit. Still, legal experts say it’ll be a tough case to make because of challenges in meeting legal standing. The moderate Democrat is now set to face off against West Virginia Gov. Jim Justice next year to retain his seat in a state Biden lost by nearly 40 points in 2020.

The Inflation Reduction Act text says that EVs qualify for half of the $7,500 credit if the minerals used in the models are “extracted or processed” in the U.S. or “in any country with which the United States has a free trade agreement.”

Meanwhile, the proposed Treasury guidance for the 30D credit gives access to 20 foreign countries with which the U.S. has traditional free trade agreements passed by Congress, along with “additional countries that the [Treasury] Secretary identifies,” such as Japan.

Reinsch, the long-time Washington trade expert, predicted the fight over the definition of a free-trade agreement will likely be settled in court.

“Since the term is undefined in the [Inflation Reduction Act], that’ll probably be resolved by litigation. This is America. Anybody can sue anybody for anything,” he said. “There’s no legislative history here to provide any guidance. And the term is not defined in the statute. So it ends up with judges.”

The two top Democratic trade lawmakers in Congress called the Japanese deal “unacceptable,” arguing the administration “does not have the authority to unilaterally enter into free trade agreements.”

“Even among allies, the United States should only enter into agreements that account for the realities of an industry, learn from past agreements, and raise standards,” Rep. Richard Neal (D-Mass.) and Sen. Ron Wyden (D-Ore.) said in late March, the day the Office of the U.S. Trade Representative announced the deal with Japan. “Agreements should be developed transparently and made available to the public for meaningful review well before signing — not after the ink is already dry.”

An aide for Wyden’s Senate Finance Committee, who was granted anonymity because the person is not authorized to speak publicly on the issue, said the Biden administration last briefed the committee on mineral trade talks in “early March.”

The congressional complaints are echoed in environmental and labor circles.

Ben Beachy, vice president of manufacturing and industrial policy at the BlueGreen Alliance, touted domestic manufacturing as the best solution to curb the U.S. climate footprint.

“The onshoring of EV manufacturing will help to cut the climate pollution that, ironically, is often baked into imports of EV components,” Beachy said. “That’s because overseas corporations tend to be more emissions intensive than U.S. factories in producing the aluminum, steel and other materials that go into EVs.”

He said the Japanese deal should “not be repeated” with the E.U. or other countries.

A recent BlueGreen Alliance study found that the Inflation Reduction Act has spurred new domestic manufacturing projects that will create 900,000 jobs. The law sparked a wave of new battery plant announcements. And the Department of Energy recently extended a $2 billion loan to a battery recycling plant in Nevada.

But the mineral negotiations are not the first time the Biden administration has struggled to balance climate and domestic manufacturing priorities.

In April, the Republican-controlled House of Representatives voted to repeal a Biden administration pause on solar tariffs from four Southeast Asian countries where the administration itself determined China is processing solar products in circumvention of U.S. tariffs. And despite a veto threat, the Senate passed the measure Wednesday with nine Democrats in support.

Biden administration officials say the pause was necessary to maintain high levels of solar deployment in the United States.

‘Immediate action today’

For months, top Biden administration officials have urged allied nations to band together with the U.S. to develop collaborative mineral supply chains.

“When we look at critical minerals and we look at solar panels and wind turbines and electric vehicles and batteries, there is already now an effort by some to narrow the control of that supply chain into one or a handful of countries,” Amos Hochstein, deputy assistant to the president and senior adviser for energy and investment, said in a March speech in Washington.

“We have to take immediate action today to work as a global community with our allies and to make sure that that market changes fundamentally,” he said. At the time of the speech, Hochstein was the State Department’s special presidential coordinator for global infrastructure and energy security.

David Turk, deputy secretary at the Department of Energy, told E&E News recently that the effort to boost allied mineral supply chains globally should be a “full interagency” strategy, pointing to expertise at DOE and assistance tools at agencies such as the U.S. International Development Finance Corp. and the U.S. Agency for International Development (USAID).

“We have our national labs, [and] we’re bringing some of that expertise to the table,” said Turk. “We’ve been having a lot of good conversations, including with [the White House]” and the Treasury Department.

Last year, the U.S. Trade and Development Agency helped to finance a mineral processing facility in the Philippines. And on May 1, following a summit at the White House with Philippine President Ferdinand Marcos Jr., Biden announced a new package of assistance to the Philippine mineral sector, including $5 million in USAID funds to boost mineral processing and EV component manufacturing in the country.

Turk said he’s looking for “good, forward-leaning language” on minerals in the upcoming G-7 nations summit in Japan.

The U.S. is home to some of the largest mineral reserves globally. And the U.S. mining sector continues to push the Biden administration to open up key mineral reserves in Minnesota, Arizona and Alaska.

But even where the administration is putting its weight behind mine proposals, judges are raising objections.

Mining experts say a 2019 judicial decision, which halted the Rosemont copper mine in Arizona, is complicating the approval mining permits by requiring companies to prove the existence of valuable minerals even at the locations mining companies want to dump mine waste.

House Republicans included language in their lead energy and permitting package to allow a company to “use, occupy, and conduct operations on public land, with or without the discovery of a valuable mineral deposit.”

Backing Biden

Proponents of EV deployment in the United States are putting their weight behind the Treasury Department’s liberal interpretation of trade agreements.

“We’re certainly supportive of expanding negotiations. We want to make sure we have the largest reach of eligibility possible for the clean vehicle credit,” said Leilani Gonzalez, policy director for the Zero Emission Transportation Association, an EV deployment advocacy group.

She added that with countries still in the middle of developing mineral supply chains, the question to answer is whether they can meet the requirements that the Department of Treasury has laid out.

Abigail Wulf, director of the Center for Critical Minerals Strategy at Securing America’s Future Energy, the pro-domestic-energy organization, also called for a “broadened” definition of trade deals.

“We think it’s a good thing to expand the tent when it comes to trade agreement countries,” said Wulf. “Simultaneously, while we’re letting down those draw bridges, we need to be making sure that the U.S. and others are building high enough walls around the Chinese Communist Party.”

The Inflation Reduction Act disqualifies vehicles from the 30D credit if the EVs contain minerals or battery components from a foreign entity of concern. While experts expect Chinese entities to fit that definition, the foreign entity of concern portion of the 30D credit doesn’t take effect until 2024.

On top of her support for the mineral negotiations, Wulf urged the Biden administration to pass traditional trade pacts with congressional support and enforceable labor and environmental standards. The United States last closed an enforceable trade deal with Mexico and Canada in 2020.

Still, Wulf said the administration is showing little appetite for that route.

“The problem with these trade agreements that aren’t ratified by Congress is that they aren’t actually enforceable,” Wulf said.

To read the full article, please click here.

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By further disrupting supply chains (already affected by the covid-19 pandemic) and food supply, and leading to a sharp increase in oil and gas prices and other commodities, the war in Ukraine could potentially slow down the pace and impact in the short-term the ambitions of the green transition agenda of North African countries. Increased public spending meant to offset social tensions caused by rising prices could put further fiscal strains on indebted countries such as Tunisia or divert budgets initially allocated to promote the green energy transition. The geopolitical impact of the war on Russian gas supply creates a tension between additional gas requests from Europeans to fill in the gap, consequent incentives for fresh gas projects in North Africa, and the target of reducing dependence from such source through additional renewable energy capacity (despite gas being proposed as part of the EU taxonomy).  

European Neighbourhood Policy, EU Global Strategy and the Strategic Compass

Traditionally, the EU Neighbourhood Policy defines European strategic interests as aiming to achieve three joint priorities: economic development for stabilisation, security, migration, and mobility. From a geopolitical perspective, both the EU Global Strategy and the recently adopted Strategic Compass – set to work as a toolkit for EU’s security and defence policy – refer to climate change, dependence on fossil fuels (including on Russia’s energy imports), and the supply of new energy sources, as a source of challenges and instability. Thus, if the EU and its Member States take a geopolitical stance towards North African countries engaged in the green energy transition of the region, including Morocco which is heading towards reaching its 42% electricity target capacity from renewable energies by 2023, the logic of their partnership would support a strengthening of EU’s external relations towards such strategic partners. To that effect, it is worth noting the latest positive developments with Spain joining Germany in a strategic move to endorse the Moroccan proposal for an autonomy status of the Western Sahara under Moroccan sovereignty as “serious, credible and realistic”. This could translate into further partnerships, investments and cooperation in the green energy transition. On the other hand, Spain and Germany will increase their imports of liquefied natural gas from the US to reduce dependence from Russian gas, rather than from Algeria – third largest gas supplier to the EU as of the first semester of 2021 – whereas Italy is seeking additional supply through the Trans-Mediterranean pipeline (Algeria-Tunisia-Italy). This takes place in a context of closure of the Maghreb-Europe Gas pipeline (Algeria-Morocco-Spain) and difficulties to supply additional quantities of Algerian gas to Spain through the MedGaz pipeline (Algeria-Spain). It could lead Algeria to further disregard progress on its already slow green energy transition, bearing in mind cooperation with the EU on that front is limited so far. Egypt could also ramp up its gas supplies to Europe, whilst pursuing its green energy transition agenda, which could strengthen its influence in the Eastern Mediterranean.

EU financing for North Africa’s green transition

In June 2021, the EU adopted the new regulation Global Europe Instrument aimed at funding international cooperation including the Southern Neighbourhood. With an initial budget of €79.46 billion for the 2021-2027 period, of which 30% is for supporting climate objectives, it provides financing through grants, technical assistance, financial instruments, and budgetary guarantees. More specifically, it aims to stimulate investments as a means of contributing to sustainable and inclusive growth, the fight against climate change, and addressing the root causes of irregular migration and forced displacement. The Global Europe Instrument is now the main EU financing platform to promote the green transition worldwide, including in North Africa.

In addition, in February 2021, the European Commission proposed a Renewed partnership with Southern Neighbourhood – A new Agenda for the Mediterranean, with an updated regional policy agenda to focus on sustainable long-term socio-economic recovery and job creation. As part of such an agenda, the Commission proposed an Economic and Investment Plan for the Southern Neighbours listing a series of flagship investments and projects that could be financed under the Global Europe Instrument to further contribute to sustainable and inclusive growth. Flagship 9 contemplates the deployment of innovative financing instruments including green bonds; Flagship 10 aims to promote energy transition by pushing for the green economy in Egypt, supporting Morocco in achieving its renewable energy and energy efficiency targets and accelerating the energy transition in Algeria. Hence, the EU and its member states are the largest donors of development aid in the world and the biggest contributors of climate financing with France, Germany, Italy and Spain driving the forces in North Africa. In the context of the private sector, leading investors include the Danish Vestas, French Engie and EDF Renewables, German Siemens-Gamesa, Italian Enel Green Power, Spanish Abengoa, and Acciona.

However, with “only” €19.32 billion dedicated to the whole Neighbourhood under the Global Europe Instrument, this budget remains limited in terms of financing the implementation of the 2030 National Determined Contributions of North African countries. The monetary needs of specific North African countries range at USD 40 billion for Morocco, USD 73.04 billion for Egypt, and USD 19.4 billion for Tunisia. Similarly, the new joint initiative ‘Global Gateway’ from the European Commission and the EU High Representative for Foreign Affairs and Security Policy, which similarly resembles a tentative response to China’s Belt and Road Initiative, does not appear to have mobilized new money for green investments, but will rather benefit from the funding of the Global Europe Instrument (and other existing initiatives). However, the planned creation of a European export credit facility (as part of the Global Gateway), although targeted to address distortion of competition, could also be a tool useful in mitigating the risks of emerging markets and may therefore attract additional renewable energies investments in North Africa.

The use of the EU Projects of Common Interest is another source of funding for green energy connectivity infrastructure across the Mediterranean. Within this framework, eligible projects can apply for grant funding under the Connecting Europe Facility. Thus far, only the Elmed 600 MW project of an electricity interconnection between Tunisia and Sicily has attracted interest. A recent initiative to promote renewable electricity trade between Morocco and the European Internal Energy Market deserves greater attention as it shows to be promising. The connection of the Ukrainian electricity network to the European grid could generate further momentum for cross-Mediterranean interconnection projects as a stability instrument to mitigate fragile contexts in the Southern Neighbourhood, such as faulty power plants or electrical load shedding. To date, the most notable achievements in renewable energies in North Africa benefitting from European funding include: an Egyptian 240 MW wind farm in the western coast of the Gulf of Suez, the first photovoltaic plant connected to the national electricity grid at Kom Ombo in Aswan, Morocco’s solar projects with the completed 580 MW Noor Ouarzazate complex and the ongoing 1,600 MW Noor Midelt initiative. 

Developing a North African green hydrogen industry to help decarbonise the EU

The EU’s goal of climate neutrality by 2050 is challenging, especially since several member states will struggle to produce all renewable energy needed to achieve such a target. As such, they may need to rely on partners and allies. In July 2020, the EU adopted a new strategy for energy system integration and a new strategy for hydrogen to promote the use of green hydrogen in its Member States. This policy focuses on hydrogen as a potential carbon free replacement for fossil fuels as it is produced by electrolysis coupled with renewable energy. Imports of green hydrogen from North Africa over long distances using gas pipelines or ships could support the EU decarbonisation. Additionally, promoting green hydrogen could serve to develop local and regional green hydrogen industries as well as create new industrial products such as green fertilisers, cement and steel which are three significant outputs of North African economies. Such projects will require partnerships between European and North African countries engaged in hydrogen strategies (like cooperation between Morocco and Germany on green hydrogen, which resumed after a year strain on relations), with pioneers such as Morocco which devised a strategy and a cluster to promote the emergence of a hydrogen industry, and Egypt which signed several partnerships with Siemens and Scatec to commission pilot projects.

Amine Bennis is an international legal counsel at the Italian Institute for International Political Science.

To read the full commentary by the Italian Institute for International Political Science, pleae click here.

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In the United States, President Biden announced new actions in the form of an Executive order which bans –

“The importation into the United States of Russian crude oil and certain petroleum products, liquefied natural gas, and coal.

“* * *

“New U.S. investment in Russia’s energy sector, which will ensure that American companies and American investors are not underwriting Vladimir Putin’s eff orts to expand energy production inside Russia.
Americans will also be prohibited from financing or enabling foreign companies that are making investment to produce energy in Russia.”

The Executive Order reads in full –

“By the authority vested in me as President by the Constitution and the laws of the United States of America, including the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.) (IEEPA), the National Emergencies Act (50 U.S.C. 1601 et seq.), and section 301 of title 3, United States Code,

“I, JOSEPH R. BIDEN JR., President of the United States of America, hereby expand the scope of the national emergency declared in Executive Order 14024 of April 15, 2021, and relied on for additional steps taken in Executive Order 14039 of August 20, 2021, finding that the Russian Federation’s unjustified, unprovoked, unyielding, and unconscionable war against Ukraine, including its recent further invasion in violation of international law, including the United Nations Charter, further threatens the peace, stability, sovereignty, and territorial integrity of Ukraine, and thereby constitutes an unusual and extraordinary threat to the national security and foreign policy of the United States. Accordingly, I hereby order:

“Section 1. (a) The following are prohibited:

“(i) the importation into the United States of the following products of Russian Federation origin: crude oil; petroleum; petroleum fuels, oils, and products of their distillation; liquefied natural gas; coal; and coal products;

“(ii) new investment in the energy sector in the Russian Federation by a United States person, wherever located; and

“(iii) any approval, financing, facilitation, or guarantee by a United States person, wherever located, of a transaction by a foreign person where the transaction by that foreign person would be prohibited by this section if performed by a United States person or within the United States.

“(b) The prohibitions in subsection (a) of this section apply except to the extent provided by statutes, or in regulations, orders, directives, or licenses that may be issued pursuant to this order, and notwithstanding any contract entered into or license or permit granted prior to the date of this order.

“Sec. 2. (a) Any transaction that evades or avoids, has the purpose of evading or avoiding, causes a violation of, or attempts to violate any of the prohibitions set forth in this order is prohibited.

“(b) Any conspiracy formed to violate any of the prohibitions set forth in this order is prohibited.

“Sec. 3. Nothing in this order shall prohibit transactions for the conduct of the official business of the Federal Government or the United Nations (including its specialized agencies, programs, funds, and related organizations) by employees, grantees, or contractors thereof.

“Sec. 4. For the purposes of this order:

“(a) the term ‘entity’ means a partnership, association, trust, joint venture, corporation, group, subgroup, or other organization;

“b) the term ‘person’ means an individual or entity; and

“(c) the term ‘United States person’ means any United States citizen, lawful permanent resident, entity organized under the laws of the United States or any jurisdiction within the United States (including foreign branches), or any person in the United States.

“Sec. 5. The Secretary of the Treasury, in consultation with the Secretary of State, is hereby authorized to take such actions, including the promulgation of rules and regulations, and to employ all powers granted to the President by IEEPA, as may be necessary to carry out the purposes of this order. The Secretary of the Treasury may, consistent with applicable law, redelegate any of these functions within the Department of the Treasury. All executive departments and agencies of the United States shall take all appropriate measures within their authority to implement this order.

“Sec. 6. (a) Nothing in this order shall be construed to impair or otherwise affect:

“(i) the authority granted by law to an executive department or agency, or the head thereof; or

“(ii) the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals.

“(b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.

“(c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

“JOSEPH R. BIDEN JR. “THE WHITE HOUSE,
“March 8, 2022.”

The new prohibitions do not prevent honoring existing contracts in the next 45 days. President Biden reviewed that the steps were taken after consultations with allies realizing that many allies were not in a position to take identical action at the moment reflecting very different situations in terms of domestic production of oil and gas and dependency on imports from Russia. (“We’re moving forward on this ban, understanding that many of our European Allies and partners may not be in a position to join us. The United States produces far more oil domestically than all of European — all the European countries combined. In fact, we’re a net exporter of energy. So we can take this step when others cannot. But we’re working closely with Europe and our partners to develop a long-term strategy to reduce their dependence on Russian energy as well.”).

The United Kingdom announced that it would phase out imports of oil from Russia during 2022. (“UK prime minister Boris Johnson’s government said it would phase out the import of Russian oil by the end of the year. Kwasi Kwarteng, UK business secretary, said the British government would organise an ‘orderly transition’ away from Russian oil imports. But Rishi Sunak, UK chancellor, told a cabinet meeting that consumers would pay a price for the ban, with lower-income households particularly hard hit. The UK is less dependent on Russia than much of mainland Europe, with Russian supplies making up 8 per cent of overall oil imports into the UK. Johnson is expected to make a statement later this week on reducing British imports of Russian gas.”).

The European Commission announced a proposed ambitious program to diversify gas supplies and expand renewables to achieve a potential two- thirds reduction in dependence on Russian oil and gas by the end of 2022 for the European Union. The program, RePowerEU, was announced on March 8th and contains a number of documents. The opening statement of Executive Vice-President Timmermans is copied below in part.

“Opening remarks by Executive Vice-President Timmermans

“* * *

“It is abundantly clear that we are too dependent on Russia for our energy needs. It is not a free market if there is a state actor willing to manipulate it.

“The answer to this concern for our security lies in renewable energy and diversification of supply.

“Renewables give us the freedom to choose an energy source that is clean, cheap, reliable, and ours. And, instead of continuing to fund fossil fuel imports and fund Russian oligarchs, renewables create new jobs here in Europe.

“With the plan we outline today, the EU can end its dependence on Russian gas and repower Europe. Fit for 55, once implemented, will reduce the EU’s total gas consumption by 30% by 2030. That’s 100 billion cubic meters of gas we will no longer need.

“Now, we will take it to the next level.

“By the end of this year, we can replace 100 bcm of gas imports from Russia. That is two-thirds of what we import from them. This will end our over-dependency and give us much needed room to maneuver. Two thirds by the end of this year.

“It is hard, bloody hard. But, it is possible, if we are willing to go further and faster than we have done before.

“REPowerEU is our plan to make Europe independent from Russian gas.

“It is based on two tracks:

“First: we will diversify supply and bring in more renewable gases.

“With more LNG and pipeline imports, we can replace 60 bcm of Russian gas within the next 12 months.

“By doubling sustainable production of biomethane we can replace another 18 bcm, using the Common Agricultural Policy to help farmers become energy producers.

“We can also increase the production and import of renewable hydrogen. A Hydrogen Accelerator will develop integrated infrastructure and offer all Member States access to affordable renewable hydrogen. 20 million tonnes of hydrogen can replace 50 bcm of Russian gas.

“We will also start replacing natural gas with renewable gases. This, in sum, is the first pillar of REPowerEU.

“In parallel, we must accelerate our clean energy transition. Renewables make us more independent, and they are more affordable and reliable than the volatile gas market.

“So, we need to put millions more photovoltaic panels on the roofs of our homes, businesses, and farms. We must also double the installation rate of heat pumps over the next 5 years.

“This is low-hanging fruit. By the end of this year, almost 25% of Europe’s current electricity production could come from solar energy.

“In addition to this, we need to speed up permitting procedures to grow our on- and offshore wind capacity, and rollout large-scale solar projects. This is a matter of overriding public interest.

“Some of these changes will not happen overnight, and that’s why we also need to prepare for next winter.

“By October, gas storage facilities in the EU must be filled up to 90% capacity. And the Commission is ready to support joint procurement of gas.

“Finally, and most importantly, we need to protect those who are struggling to pay their energy bills.

“Our plan today proposes several ways to help the most exposed households and businesses.

“Kadri will go through these in more detail.

“To conclude, RePowerEU is our plan to break our dependency on Russian gas, and to find freedom in our energy choices.

“We can do it, and we can do it fast.

“All we need is the courage and grit to get us there. If ever there was a time to do it, it is now.

While Australia does not appear to have announced a ban on imports of Russian oil into Australia, its two oil companies have announced cessation of procurement or lack of procurement from Russia. 

Other actions

While the U.S. Congress has bills pending before both the House of Representatives and the Senate that would remove normal trade relations status on Russia (i.e., end most favored nation treatment) and instruct the US Trade Representative to seek suspension or removal of Russia from the WTO, press reports indicate that with President Biden’s action on Russian oil, gas and coal, the Administration has asked for a different piece of legislation from Congress, one that wouldn’t (at least at present) address normal trade relations or Russia in the WTO. While Canada has suspended normal trade relations on goods from Russia and Belarus, U.S. inaction presumably reflects the focus of the U.S. and European allies on other sanction issues while seeking internal support for the step of suspending normal trade relations.

On March 9, 2022, the EU announced additional financial sanctions of Belarus and an expansion of individuals being sanctioned in Russia. Most of the press release is copied below.

“The European Commission welcomes today’s agreement of Member States to adopt further targeted sanctions in view of the situation in Ukraine and in response to Belarus’s involvement in the aggression. In particular, the new measures impose restrictive measures on 160 individuals and amend Regulation (EC) 765/2006 concerning restrictive measures in view of the situation in Belarus and Regulation (EU) 833/2014 concerning Russia’s actions destabilising the situation in Ukraine. These amendments create a closer alignment of EU sanctions regarding Russia and Belarus and will help to ensure even more effectively that Russian sanctions cannot be circumvented, including through Belarus.

“For Belarus, the measures introduce SWIFT prohibitions similar to those in the Russia regime, clarify that crypto assets fall under the scope of “transferable securities” and further expand the existing financial restrictions by mirroring the measures already in place regarding Russia sanctions.

“In particular, the agreed measures will:

“Restrict the provision of SWIFT services to Belagroprombank, Bank Dabrabyt, and the Development Bank of the Republic of Belarus, as well as their Belarusian subsidiaries.

“Prohibit transactions with the Central Bank of Belarus related to the management of reserves or assets, and the provision of public financing for trade with and investment in Belarus.

“Prohibit the listing and provision of services in relation to shares of Belarus state-owned entities on EU trading venues as of 12 April 2022.

“Significantly limit the financial inflows from Belarus to the EU, by prohibiting the acceptance of deposits exceeding €100.000 from Belarusian nationals or residents, the holding of accounts of Belarusian clients by the EU central securities depositories, as well as the selling of euro- denominated securities to Belarusian clients.

“Prohibit the provision of euro denominated banknotes to Belarus.

“For Russia, the amendment introduces new restrictions on the export of maritime navigation and radio communication technology, adds Russian Maritime Register of Shipping to the list of state-owned enterprises subject to financing limitations and introduces a prior information sharing provision for exports of maritime safety equipment.

“In addition, it also extends the exemption relating to the acceptance of deposits exceeding €100.000 in EU banks to Swiss and EEA nationals.

“Finally, the EU confirmed the common understanding that loans and credit can be provided by any means, including crypto assets, as well as further clarified the notion of “transferable securities”, so as to clearly include crypto-assets, and thus ensure the proper implementation of the restrictions in place.

“Furthermore, the amendment introduces new restrictions.

“Furthermore, an additional 160 individuals have been listed in respect of actions undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.

“The listed individuals include:

“- 14 oligarchs and prominent businesspeople involved in key economic sectors providing a substantial source of revenue to the Russian Federation – notably in the metallurgical, agriculture, pharmaceutical, telecom and digital industries -, as well as their family members.

“- 146 members of the Russian Federation Council, who ratified the government decisions of the ‘Treaty of Friendship, Cooperation and Mutual Assistance between the Russian Federation and the Donetsk People’s Republic’ and the ‘Treaty of Friendship, Cooperation and Mutual Assistance between the Russian Federation and the Luhansk People’s Republic’.

“Altogether, EU restrictive measures now apply to a total of 862 individuals and 53 entities.”

As Russia continues to escalate its hostilities in Ukraine, the U.S., EU, G7 and other countries continue to make clear that there will be major costs imposed on Russia for the unprovoked war. While many of the sanctions are financial, some are trade focused. The move away from Russian oil and gas and the restrictions on the export to Russia of materials and technology for the sector will significantly reduce Russian gross domestic product over time with so much of the economy currently tied to oil, gas and coal.

Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.

To read the full commentary from Current Thoughts on Trade, please click here.

The post U.S. Joins Canada In Banning Imports Of Russian Oil And Gas; EU Announces Plan To Drastically Reduce Reliance On Russian Gas; United Kingdom Will Phase Out Imports Of Oil And Gas From Russia By End Of 2022; Australian Oil Companies Stop Purchasing Russian Oil appeared first on WITA.

The urgency of these measures has never been more clear. As a new report released by the U.N. last week demonstrates, governments’ existing plans to curb carbon emissions are insufficient to meet the Paris Climate Agreement’s goal of limiting the rise in global temperatures to 1.5 degrees C above pre-industrial levels by 2100. Instead, current climate mitigation measures put the world on track to cap global temperature rise at closer to 2.7 degrees by the end of the century—potentially enough to avoid the most calamitous effects of climate change but still well above the goals established by the Paris Agreement. These outcomes, though, are far from set in stone, and the U.N. concluded that countries can still limit warming by another half a degree, to 2.2. degrees C if they adopt and implement new net-zero emissions policies in the coming years.

The question then becomes this: What policy tools are available to the U.S. to incentivize other countries to move towards these net-zero outcomes?  There are a broad range of tools, but it is increasingly clear that trade policy and other border policies will play an outsized role. Trade policy can both incentivize good behavior and penalize bad behavior, in many cases leading to swifter outcomes than those achieved through purely voluntary commitments. In the climate context, we will see many ambitious commitments unveiled this week in Glasgow—but emissions know no borders, and until all countries are aligned on the urgency of the problem and have agreed to share the responsibility of reaching net-zero emissions, trade policy will likely remain a critical tool.

Using a system of carrots and sticks, the United States can leverage its climate leadership to develop an alliance of environmentally like-minded countries who enjoy preferential terms of trade and pursue deepened cooperation, including in how they work together to help developing countries meet their own climate commitments.  We have seen the first evidence of this approach just this week with the U.S. – EU announcement to negotiate a sectoral arrangement for steel and aluminum that will for the first time address carbon intensity as part of a trade initiative. And for those countries playing the short game, trade policy offers several templates to introduce carbon border adjustment mechanisms—or CBAMs—a class of trade measure designed to support climate mitigation policies by addressing carbon leakage (i.e. the migration of carbon-intensive production from areas with stricter emissions standards to those with weaker standards).

To CBAM or not to CBAM?

Although CBAMs are not on the formal agenda in Glasgow, several countries are considering implementing them, including the EU, Japan, and Canada. The idea of the U.S. implementing a CBAM has also been gaining traction among some trade experts and policymakers in Washington. The reason for CBAMs is clear: compliance with stricter emissions standards and deeper investments in environmental technologies leads to far more favorable environmental outcomes, but they come at a cost. A CBAM can help level the playing field so that producers in countries with a carbon advantage are not placed at a competitive disadvantage.  Yet a patchwork of uncoordinated CBAMs—including measures that are directed at like-minded allies—has the potential to be counterproductive by creating incentives for carbon arbitrage and reigniting a race to produce in the cheapest carbon markets. The United States has an opportunity to steer the global path forward on CBAMs, but it must do so both expeditiously and thoughtfully, taking into consideration the following critical questions for a U.S. CBAM framework.

1. How should the U.S. measure carbon content?

Before adopting a carbon border adjustment mechanism, regulators in the U.S. will have to decide how to measure the total carbon content of manufactured products. There are two major schools of thought when it comes to calculating carbon content: point-of-production analyses and life-cycle analyses. As the name suggests, point-of-production analyses account for the amount of carbon emissions produced at the site of production, including direct energy inputs. Life cycle analyses, by contrast, are additive and account for the total carbon footprint of a product across the entire value chain, including the emissions produced by the energy that was needed to produce and distribute the components and final goods in question.

Of course, a life-cycle analysis is more comprehensive than a point-of-production analysis, but there are still several question marks about how a life cycle analysis would work in practice. For instance, life cycle analysis methodologies vary greatly between and within international jurisdictions and can prejudice geographically equitable accounting of carbon output/savings. The starting point and scope of inputs included also vary by methodology, making an ‘apples-to-apples’ comparison of carbon output between countries impractical.

2. Which type of carbon emissions does the U.S. want to offset with a CBAM?

Carbon border mechanisms can address carbon leakage in one of two ways: either by applying a price or tax on either positive carbon output (i.e. the amount of carbon that that is “saved” through mitigation techniques and compliance compared to an unmitigated circumstance) or by applying a price to negative carbon output (i.e. the amount of carbon emitted in excess of what is mitigated).

These strategies, however, are not mutually exclusive, and the most equitable and comprehensive approaches use a combination of the two. An example of both positive and negative carbon adjustment would be a carbon price applied to the full unmitigated value of emissions in order to address domestic industry concerns about the imbalance between relative compliance costs or a combination of compliance costs adjustment (for negative values) and a carbon price/tax (for positive values).

3. How does the U.S. avoid facilitating adverse arbitrage between the cost-of-compliance and the price for carbon?

Complying with new or existing environmental regulations creates significant costs for manufacturers in highly-regulated markets like the U.S., placing those manufacturers at a competitive disadvantage relative to their competitors in less stringent regulatory environments. CBAMs may be designed to remedy this imbalance by pairing the cost-of-compliance (i.e. the price of complying with mitigation regulations) with the price of unmitigated carbon to create a more even playing field.

But regulators have to walk a careful tightrope in determining these costs. Pricing the cost-of-compliance provides the benefits of harvesting the U.S. carbon advantage, leveling the playing field to what U.S. firms already invest in environmental compliance. Moreover, setting a base price on the cost-of-compliance is both technically feasible and straightforward because values can be objectively determined from the capital and operational costs of relevant process technologies. However, if cost-of-compliance is imposed in conjunction with a price for carbon that is too low—and without appropriate regulatory guardrails—it could undermine regulatory effectiveness over time with pollutants other than greenhouse gas emissions and encourage off-shoring by incentivizing manufacturers to pay for the price of carbon rather than comply with regulation, resulting in adverse environmental/carbon arbitrage.

4. Which instrument(s) should the U.S. use to implement border adjustments?

In order to implement a border carbon adjustment, the U.S. can draw from a variety of new or existing border instruments, either independently or in conjunction—including a commoditized carbon price, tax/fee, specific tariff, a value-added tax (VAT), and import licensing fees, and/or various trade remedies like countervailing duties. Existing border instruments carry the benefit of administrability and efficiency, but market mechanisms have bold potential to accelerate decarbonization by creating secondary carbon markets and financial instruments that promote speedier and more efficient deployment of technologies for carbon elimination.

5. Product Coverage: upstream components and/or downstream components and products?

Taxing or pricing upstream commodities in isolation would likely have the unintended consequence of offshoring industries as manufacturing follows cheap inputs and operating costs to low-standard jurisdictions that face no border adjustment on downstream products. Full product value chains would need to be included in order to avoid carbon and/or environmental arbitrage.

6. How should a CBAM raise revenue: through the market or through fees/taxes?

The approach to raising revenue can make or break the effectiveness of carbon pricing and border adjustment mechanisms. Market-based approaches treat greenhouse gas units as a commodity unto themselves, allowing the market to set a “true” price for carbon mitigation. Under a market-based scheme, carbon credits become fungible assets that can be traded or hedged through financial instruments like options and futures with a market premium on pulling more carbon out of the air today than in the future.

Fees or taxes, by contrast, are collected by the government, which then redistributes those assets to correct for externalities (like higher energy prices or displaced workers) created by internalizing carbon costs in industry.

7. How would the U.S. use the revenue from a CBAM?

Revenue from taxes and fees can be either consumer- or industry-corrective and either balanced or unbalanced. Consumer-corrective options include direct subsidies to households to adjust for higher energy and fuel costs. An example of an unbalanced consumer-corrective mechanism would be a direct and equal payment to all households in all jurisdictions, where jurisdictions with higher energy transition costs receive a corrective payment while those in lower-cost areas—where the sun shines, the wind blows, and atoms react—receive a windfall. Alternatively, a balanced consumer-corrective approach would seek to level energy prices nationwide by providing payment credits to high transition-cost jurisdictions.

Industry-corrective approaches are similar but seek to adjust costs at the industry level before higher prices are passed onto the consumer. A balanced industry-corrective approach would include capital credits and subsidies to fund transition technologies and address legacy infrastructure overhang to keep the price of energy level across jurisdictions. An unbalanced industry-corrective approach would be an equalized feed-in tariff or subsidy for all utilities irrespective of local climatic conditions and the age and viability of existing energy infrastructure.

Revenue from a CBAM can also be used to provide “climate adjustment assistance” benefits to workers displaced by a shift to new energy sources, including retraining and extended health benefits.

An answer to the drawdown showdown?

Thinking expansively about the tools available to policymakers to incentivize a rapid and equitable drawdown will be essential to achieving the world’s economic and climate goals. Time is short and the stakes are high, but the practicability and potential of carbon pricing and border adjustments are promising and deserve the full attention of governments and stakeholders.

To read the full commentary from Silverado Policy Accelerator, please click here.

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Domestic jobs and manufacturing have been a recurring theme for the Biden administration, as part of an agenda to “rebuild the middle class.” In its review of critical supply chains, the administration floated a proposal to offer higher rebates for electric vehicles produced with high labor standards in the United States (p. 137) and suggested a push for the Department of Energy to boost “domestic manufacturing requirements for grants, cooperative agreements and R&D contracts” (p. 145); it tasked the U.S. Export-Import Bank “to support the establishment and/or expansion of U.S. manufacturing facilities and infrastructure projects in the United States that would support U.S. exports” (p. 14); and it hinted at several other measures to support local jobs and domestic manufacturing.

The proposed Build Back Better Act offers higher credits to electric vehicles assembled in the United States. There is a baseline credit, depending on the battery capacity and the year the vehicle was placed into the service, for up to $7,500. But there are two more credits: a $4,500 credit “if the final assembly of the vehicle is at a facility in the United States which operates under a union-negotiated collective bargaining agreement,” and a $500 credit “if the vehicle model is assembled by a manufacturer which utilizes no less than 50% domestic content in component parts of such vehicles and such vehicles are powered by battery cells which are manufactured within the United States.” So 40 percent of the maximum proposed credit for electric vehicles is linked to the location and labor practices of production.

There is a similar provision for renewable energy projects under the Investment Tax Credit and Production Tax Credit covering wind, solar, geothermal, and several other technologies. All these investments enjoy a baseline and a bonus credit “for projects which meet certain prevailing wage and apprenticeship requirements the facility meets. Both of these credits are raised if the facility meets the thresholds for domestic content (defined as: “if not less than 55% of the total cost of the components of such product is attributable to components which are mined, produced, or manufactured in the United States”). Here too, there is a clear effort to incentivize domestic manufacturing of components for renewable energy.

In the past, such measures have run afoul of WTO rules. One of the first cases, in 2010, that the United States brought against China related to low-carbon energy challenged China’s wind power equipment fund, which offered higher subsidies to projects with domestic components. In 2013, the United States challenged India at the WTO for a similar provision in India’s “National Solar Mission.” Other countries have brought similar cases and generally prevailed. Treating domestic and foreign suppliers evenly is one of the foundations of the WTO, and domestic content provisions have often been found to violate WTO rules.

Adding domestic content provisions to the Build Back Better Act could well spark a new round of trade conflicts. This will happen at a moment when the trade-climate agenda is already under strain. The European Union’s carbon border adjustment mechanism is also likely to be litigated. And the United States is opening a new front in trade tensions with China as it begins to seize solar products tied to forced labor. If anything, we can expect the trade-energy-climate nexus to become thicker and more complicated.

The provisions in the Build Back Better Act expose an inherent and growing tension in climate politics: governments around the world are using the promise of job creation as a basis for upping their ambition. Without measures to ensure that some benefits accrue visibly at home, rather than abroad, how are voters to support policies that might raise costs and lower competitiveness? For the past 15 years, the world has benefited immensely from global supply chains for solar, wind, and batteries, which helped bring down costs. Without global supply chains, costs will not fall as fast; with global supply chains, the domestic push for higher ambition might be tempered as benefits accrue overseas.

The point here is not that the Biden administration and Congress should not advance and favor domestic manufacturing— they should. In this case, they could advance alternate approaches, like subsidizing investment in domestic plant and equipment, to achieve a similar end without sparking a trade dispute. The more important task is for the Biden administration to offer a coherent theory for balancing the need for domestic jobs and manufacturing with a WTO system that is designed to clamp down on such practices. The administration has often said that the trade agenda must align with the imperative of climate change, but so far, it has nothing concrete on how to reconcile the two.

Nikos Tsafos is James R. Schlesinger Chair for Energy and Geopolitics with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C.

To read the full commentary from the Center for Strategic and International Studies, please click here.

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DIFFERENT CARBON LIMITATION POLICIES

The United States, China, and Europe have committed themselves to raising the penalty for carbon emissions but at different speeds and with different coverage and approaches. Raising the carbon penalty, through taxes, trading systems, or regulations will inevitably make home-produced goods and services more expensive. The fear therefore is that nations with less ambitious efforts will export goods that are cheaper because their penalties are less costly. This fear, in turn, inspires concern in other countries that their exports will be unfairly penalized by protectionist measures. For example, Europe is now threatening a new array of carbon tariffs, while the United States and China are threatening to retaliate. These threats could lead to an escalation of protectionist actions that would undermine the world trading system.

One possible solution to this problem may be to bring in the World Trade Organization (WTO) to adjudicate differences while preserving momentum for tackling carbon emissions. Time is running out if the climate change agenda goals are to be met. The meeting of the 26th UN Climate Change Conference of the Parties (COP26), starting November 1 in Glasgow, will provide a test of whether these competing interests can be reconciled.

Both the European Union and the United States have released border tax proposals as part of their green initiatives. The primary purpose of border adjustments is to prevent “carbon leakage”—shorthand for the risk that high-carbon imported goods, paying little or no carbon fees, will take market share from low-carbon fee-paying domestic firms, thereby defeating the effort to reduce global emissions while harming the domestic industry. But border tax proposals are controversial for two reasons: First, trading partners fear disguised protection that violates WTO rules; second, many observers believe that the proposals, if implemented, will provoke opposition and obstruct cooperative action to reduce global emissions.

After a summer of fires, droughts, floods, and furnace-like temperatures, public demand for decisive measures is overwhelming. The heat wave sweeping northwestern North America in late June 2021 caused 569 heat-related deaths in British Columbia. Meanwhile, in mid-July, China faced devastating floods across central Henan province, leading to 302 deaths and 50 missing persons. Responding to these calamities, China, the United States, and the European Union have proposed updates to their emission reduction commitments, aligning with their own political and economic constraints. The table below summarizes the proposals.

CHINA OPENS NATIONAL CARBON TRADING MARKET AND HAS NOT PROPOSED BORDER TAX ON CARBON

China is the latest to announce new measures. After years of localized pilot programs, China opened its long-awaited national carbon trading market on July 16, 2021. In the initial phase, the scheme covers 2,225 power plants. The government will hand out free allowances to cover firms for part of their emissions. Allowances are benchmarked against previous performance, and firms can trade allowances on the market. A company that has excess allowances thanks to cutting its emissions can sell them; a company that has more emissions than allowances can buy enough to make up the shortfall.

Importantly, China has not yet promised to decrease allowances over time. This is unfortunate since some power plants may relax their efforts to cut emissions and instead just rely on their historic quota of free allowances. While the market currently only covers the power sector, officials have indicated that other high-polluting industries such as steel, cement, chemical, electrolytic aluminum, and papermaking—some of them already covered in local pilot programs—could be covered in later stages.

Meanwhile, China has not proposed border measures, both because its current scheme does not impose high carbon prices and because it disapproves of the border measures proposed by the European Union and United States. Apart from the carbon trading market, Yi Gang, Governor of the People’s Bank of China, announced in June that the PBOC plans to launch mandatory climate-related disclosure requirements on domestic commercial banks and subsequently expand the requirements to listed companies.

US AND EU LEGISLATORS PROPOSE BORDER TAXES ON CARBON

While China built its emissions trading system (ETS) along lines similar to the European Union, the United States so far lacks a domestic carbon pricing scheme, either through a carbon tax or trading system. However, even without a domestic tax or ETS, a group of Democrats in Congress unveiled proposals for a border carbon adjustment tariff effective January 1, 2024. The scheme would cover carbon-intensive goods that are “exposed to trade competition,” including aluminum, cement, iron, steel, natural gas, petroleum, and coal. This list would expand as the United States improves its calculations of the carbon intensity of different goods. Importers would pay a carbon fee based on costs that US producers are calculated to incur complying with domestic environmental standards and the quantity of greenhouse gas (GHG) emissions associated with each covered good, both determined by the Treasury Department.

Building on its mature ETS, the European Union’s legislative body, the European Commission, proposed a Carbon Border Adjustment Mechanism (CBAM) to prevent carbon leakage. Goods at high risks of carbon leakage, including iron and steel, cement, fertilizer, aluminum, and electricity generation, are prospectively covered by CBAM. The Commission envisages a transition period between 2023 and 2025, when importers need only report emissions embedded in their products. Border fees will be collected starting in 2026. Importers will buy CBAM certificates (i.e., pay import fees) for covered goods.

The price of the European import fee would differ from the price in the pending US measure. Because the European Union has an operating ETS, the price of its import fee will be based on the weekly average auction price of EU ETS allowances expressed in euros per ton of CO2 emitted. For covered products, CBAM fees will apply to the proportion of emissions that exceed free allowance allocations under the EU ETS, which will gradually phase out from 2026. Importers can claim credits to offset select foreign carbon fees paid on embedded emissions. At a future date, the European Central Bank intends to incorporate climate considerations into its policy framework.

RETALIATION THREATS AND WTO RULES: POSSIBLE RECONCILIATION

The US and EU border tariffs schemes have prompted opponents to complain about the impact on international trade. US climate envoy John Kerry expressed concerns about the EU CBAM, and Australian prime minister Scott Morrison declared that carbon tariffs are “simply trade protectionism by another name.” As an economy that is expected to be hit hard by the border adjustment plans, China also voiced objections, saying that CBAM violates WTO rules, will seriously undermine the principle of common but differentiated responsibilities, will erode mutual trust in the global community, and curb prospects for economic growth .

As carbon tariffs are debated by lawmakers and move through US and EU legislative bodies, their compatibility with WTO rules will be vigorously contested. Importantly, both the US and the EU proposals grant discretionary exemptions to qualified trading partners. While seemingly benign, such exemptions could put border adjustments in violation of the WTO’s non-discrimination rule. Furthermore, the General Agreement on Tariffs and Trade (GATT), signed in 1947 and reaffirmed with the creation of the WTO in 1994,mandates in Article III that taxes on imported products should not exceed those imposed on like domestic products. The EU free allowances on CBAM products (which can be seen as a subsidy) and the absence of a US domestic carbon tax both raise national treatment questions.

As a recent Canadian policy paper observes, many countries will adopt their own tax, trading, and regulatory systems to reduce carbon emissions. Most will adopt border measures to avert carbon leakage and market loss by high emitting industries. Foremost the border measures will protect domestic markets against imports, but in some cases export rebates will seek to preserve markets abroad. A multitude of conflicting border measures seems a sure formula for serious trade friction.

To reduce if not eliminate trade friction, WTO members should create an expert body to calculate (and periodically update) the tax equivalent of domestic carbon restrictions—be they fees or regulations—imposed by member countries. Further, each member should give appropriate credit in their border measures, according to these calculations, for taxes or tax equivalents previously paid on imports that arrive from other members. Collectively, WTO members should agree that, when credit is given consistent with the foregoing calculations, no member will bring a case asserting violation of WTO rules with respect to its exports. To be sure, this is a bold proposal, but perhaps within the realm of political acceptance. As a promising first step, members should accept a two-year moratorium on border measures, giving time for serious calculations.

Gary Clyde Hufbauer, nonresident senior fellow at the Peterson Institute for International Economics, was the Institute’s Reginald Jones Senior Fellow from 1992 to January 2018. 

To read the full commentary from the Peterson Institute for International Economics, please click here.

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Below, we review the multiple estimates of the investment required to reach climate goals and discuss the macroeconomic relevance of investment on top of what will already be spent to replace existing infrastructure.

Global energy investment trends

Global energy investments currently stand at around $2 trillion per year or 2.5 percent of global GDP, according to the International Energy Agency (IEA). In an illustrative pathway they recently developed, this will have to rise to $5 trillion or 4.5 percent of GDP by 2030 and stay there until at least 2050 to reach net zero CO₂ emissions by 2050 (Figure 1). Much of this will be spent on electricity generation and infrastructure to electrify new economic sectors and to make the electricity system more suitable for much higher volumes and variability of renewable energy.

Other net zero pathways point to similar orders of magnitude (Figure 2). The International Renewable Energy Agency (IRENA) frontloads the necessary investments to the current decade, resulting in investments of $5.7 trillion per year until 2030, though less thereafter. Bloomberg New Energy Finance (BNEF) estimates average investment requirements to be between $3.1 trillion and $5.8 trillion per year until 2050.

In the EU, the European Commission estimates that reaching the 2030 climate target will require additional annual investments of  €360 billion on average, starting now. This will raise relevant investments from an average of €683 billion per year in the last decade to around €1,040 billion per year. Roughly a third of the additional investment is in transport, by far the largest component because of large vehicle replacement needs. Apart from transport, the emphasis seems to lie more on doubling investment in residential heating, but smaller components like power grids and plants still have to increase by a factor of two (Figure 3).

According to all these estimates, reaching climate neutrality by mid-century will require additional investments in energy and transport systems amounting to roughly 2 percentage points of GDP than current levels.

The size and scope of the required investments means that their macroeconomic implications will be significant. We will analyse these implications in a series of forthcoming publications, based on a new Bruegel research project into the macroeconomics of decarbonisation.

Klaas works at Bruegel as a Research Assistant. He holds a Master in Economics from the KU Leuven and in European Economic Studies from the College of Europe. Additionally, he spent one semester at Uppsala University.

Simone Tagliapietra is a Senior fellow at Bruegel. He is also Adjunct professor of Energy, Climate and Environmental Policy at the Università Cattolica del Sacro Cuore and at The Johns Hopkins University – School of Advanced International Studies (SAIS) Europe.

Guntram Wolff is the Director of Bruegel. Over his career, he has contributed to research on European political economy and governance, fiscal, monetary and financial policy, climate change and geoeconomics. Under his leadership, Bruegel has been regularly ranked among the top global think tanks and has grown in influence and impact with a team of now almost 40 recognized scholars and around 65 total staff. Bruegel is also recognized for its outstanding transparency.

To read the full commentary from the Brugel Newsletter, please click here.

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Change is happening as West African countries work together to ‘pool’ their power systems for better use and sharing of cheaper, greener energy resources available right in the neighborhood. The region has significant natural energy resources, namely, hydropower, gas, and wind mostly along the coast and solar power – especially in the Sahel region. The West African Power Pool (WAPP), established in 1999, expects to interconnect the 14 mainland countries of the Economic Community of West African States (ECOWAS) by the middle of the decade and bring to fruition a self-reliant regional power market that delivers abundant affordable electricity to all.

Across the region, the economic benefits of the regional power market are evaluated at up to US$665 million per year, with the average cost of electricity generation expected to fall by between a quarter and a third. Over the past 10 years, the World Bank has financed close to US$2.3 billion of investments in transmission infrastructure, and institutional capacity in support of the WAPP.  

But hardware and institutions alone do not make a market. For actual trade to happen, neighbors must have confidence in each other and in the flow of commodities and payments. Despite progress, market confidence remains shaky as some countries balk at the lumpy capital investments and long lead times needed to develop new WAPP-dependent infrastructure. Others suffer from financially distressed national utilities whose creditworthiness and ability to trade may be called into question. These and other factors have caused some would-be importer countries to continue to rely on their own expensive small-scale electricity generation instead of shifting their sights and investment priorities toward least-cost options from neighboring exporter countries.     

The World Bank and other partners are helping countries overcome the financial barriers but changing mindsets and instilling trust in the market have required a new focus on regional cooperation in domestic policies.

An important step forward was the adoption of the ECOWAS Directive on the Securitization of Cross-Border Power Trade in December 2018. This regional reform program aims to increase confidence in the enforcement of commercial agreements, to encourage least-cost investment decisions that promote regional options and competition, and to promote transparency on the creditworthiness of national power utilities and on key investment decisions that may impact demand and supply across the market. It calls for national policies and reforms that, if implemented collectively across the region, will lead to sustained trade and thus investment decisions that lower costs.  

Funding from the World Bank’s Energy Sector Management Assistance Program (ESMAP) supported the directive’s preparation, and the Bank is now helping to operationalize it through the $300 million West Africa Regional Energy Trade Development Policy Financing (DPF) in Burkina Faso, Côte d’Ivoire, Guinea, Liberia, Mali, and Sierra Leone. Like other DPFs issued by the Bank, this one provides governments with fast general budget support in exchange for a pre-agreed program of institutional and policy reforms referred to as “prior actions.” Unlike other DPFs, this one marks the Bank’s first multi-country DPF operation using the Regional IDA window –[IDA is the International Development Association, the branch of the World Bank Group that supports poor countries]– and a joint matrix of policy and institutional actions. Not surprisingly, there has been a learning curve. Three important lessons have emerged so far:

1. Start with joint agreements among high-level decision makers. Early in the process (and pre-pandemic), we were able to get all the Ministers of Finance and Ministers of Energy from all six countries in one room to mutually agree on the prior actions needed to build trust in trade. This has meant that sector ministries have found it hard to back out of difficult, but necessary, prior actions required of them.
2. Design prior actions in a manner that is resilient to events. The structural measures put in place to regularize payments from Mali to Côte d’Ivoire were simple transparent mechanisms designed to limit opportunities for interference, and were unaffected by the August 2020 coup d’état in Mali, even while the West Africa Economic and Monetary Union (WAEMU) closed normal flow of funds with Mali.
3. Remain flexible to keep on track. The COVID-19 pandemic and continuing political instabilities in Mali delayed the DPF’s effectiveness, but we did not let these forces blow us off course. We continued to work with countries bilaterally (and virtually), and the DPF was able to launch in February 2021 with all countries fully on board.

We are encouraged by this initial progress, but deep complexities remain in knitting together the region’s power systems. Most recently, unforeseen supply shortages curtailed exports from Côte d’Ivoire to Mali and Burkina Faso. Several interconnectors under construction will eventually alleviate such shortages, as countries will be able to import from different sources in the region. Regulatory reforms backed by the DPF will further increase trade connections and confidence. Transformation at this scale takes time, but as it happens, the West Africa region will be more self-reliant, greener, and more able to cope with shocks. Together, we remain committed to achieving affordable and reliable electricity for all.   

Mustafa Zakir Hussain advises senior levels of government on policies to advance major infrastructure service delivery while controlling fiscal deficits and advancing national and global de-carbonization objectives. During 2018-21, he led dialogue in a number of countries in West Africa to reduce the fiscal burden of the energy sectors – including leading the Bank’s landmark 6-country Regional Energy Trade Development Policy Financing operation to advance affordability, resilience and de-carbonization in the region’s energy use.

His over 15-year career at the Bank has also covered Eastern and Southern Africa, South Asia, East Asia Pacific, the Balkans and North Africa. He has worked on many aspects of infrastructure service delivery – including economic regulation, output-based financing, project finance and guarantees – and polices to increase competition and improve governance around key investment decisions. A major sector focus has been on energy transition. Beyond infrastructure, he has led national multi-sector budget support operations and worked on the Bank’s operational policies and corporate agenda.

To read the full commentary from World Bank Blogs, please click here. 

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