U.S. climate win may distort global net-zero race

ReNew Energy Global

18/08/2022 03:05

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Una Galani
    MUMBAI, Aug 18 (Reuters Breakingviews) - America’s drive to
speed up its energy transition is likely to throw other big
carbon emitters off course. A large chunk of America’s $430
billion Inflation Reduction Act that President Joe Biden signed
into law on Wednesday will incentivise companies to boost the
country’s solar, wind and hydrogen output. The danger is that
for the next few years this will give them far greater control
over supply chains that poorer countries depend on before the
knock-on benefits of increased investment and production make
such technology  urn:newsml:reuters.com:*:nL4N2ZS03J more available and
affordable worldwide. 
    Take a big emitter like India. Its goal for 280 gigawatts of
solar power by 2030 is credible because current end tariffs of
about 2.5 rupees ($0.031) per kilowatt hour make the energy
source cheaper than producing power from domestic coal. Indian
companies including Adani Green Energy  ADNA.NS , U.S.-listed
ReNew Energy  RNW.O  and Singapore sovereign fund-backed Greenko
have relied on foreign suppliers and market forces to drive down
prices thus far. 
    Washington’s new tax credits and grants are likely to prompt
makers of panels, turbines and other such hardware to shift
focus  urn:newsml:reuters.com:*:nL1N2ZO0Z2 to the United States in expectation of a
bumper payday. The handouts will at least roughly double the
internal rate of return shared by solar and wind projects for
developers, offtakers and investors, per a Boston Consulting
Group study factoring in the bill’s details as of Aug. 6. 
    In a world where supply chains for solar and wind parts are
already tight, and contracts are often short rather than long
term, it is logical that suppliers stand to benefit too. A
similar reprioritising of global customers happened during
former U.S. President Barack Obama's administration after it
introduced wind farm subsidies. If Indian companies end up
having to compete against prices adjusted for U.S. tax credits,
the country’s solar tariffs could rise to about 3.5 rupees, one
industry executive told Reuters Breakingviews, a point at which
the cost of producing power from domestic coal starts looking
competitive again. 
    India is trying to kick start its own solar module and cell
manufacturing capacity by slapping taxes on imports, which
mostly come from China, and by offering some sales-based
manufacturing incentives over five years. But the effort pales
against the larger U.S. scheme that will last for roughly a
decade. What’s more, the technological expertise in cleantech
sits mostly in China, the United States and Europe but there’s
little action yet on transferring this knowledge elsewhere.
Meanwhile, rich countries continue to fall short https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.oecd-ilibrary.org%2Fsites%2F03590fb7-en%2F1%2F3%2F1%2Findex.html%3FitemId%3D%2Fcontent%2Fpublication%2F03590fb7-en%26_csp_%3Db6cad02d0eb457a81fa094a9ec2d21cc%26itemIGO%3Doecd%26itemContentType%3Dbook%23section-d1e239&data=05%7C01%7CThomas.Shum%40thomsonreuters.com%7Cde4dc30ab2ae4e7c54f208da80d1206c%7C62ccb8646a1a4b5d8e1c397dec1a8258%7C0%7C0%7C637963932929849654%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=ZRKbHsfge9YSjOO3kbcJ%2FNz61SOPLrFfoPtNr%2BA%2BGRI%3D&reserved=0
 of their pledge to transfer $100 billion per year to help
poorer countries deal with climate change. 
    Elsewhere, innovation might take a hit too. Consider green
hydrogen. The U.S. is offering a tax credit of $3 per kg, which
might be enough to make it competitive with grey hydrogen, but
that is above the $2 per kg Mukesh Ambani’s Reliance Industries
 RELI.NS  was aiming to solve for before the end of 2030. 
    Ramping up production of technology usually brings costs
down for everyone over the longer run, while also improving
efficiency and other metrics. That has been the case for solar
cells, wind turbines and electric-vehicle batteries in the past
and is likely to continue. Introducing government subsidies
 urn:newsml:reuters.com:*:nL4N2ZG3VV for commercial production is one way to accelerate
the process. In the short term, though, America’s new climate
win could hamper other countries’ race to net zero – and make it
harder for Washington to point a finger at emerging-market
polluters if they do fall behind their emissions-reduction
goals. 
    Follow @ugalani https://twitter.com/ugalani on Twitter
    
    CONTEXT NEWS
    U.S. President Joe Biden signed the Inflation Reduction Act
into law on Aug. 16. The legislation passed by Congress includes
generous infrastructure grants and tax credits to support the
growth of solar, wind and hydrogen industries in the country.
The plan is due to go into effect on Jan. 1, 2023.

 (Editing by Antony Currie and Thomas Shum)
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