US President Donald Trump’s aggressive use of tariffs on imports looks likely to have major impacts on the world economy and also therefore on energy and climate issues - although it’s too soon to say exactly what they will be. However, some immediate judgements were made on energy by consultants Wood Mackenzie, who told The New York Times that a 25% tariff on imports could raise the cost of building onshore wind turbines by 10% and renewable energy overall by 7% and many of the tariffs exceed 25%. And MIT said that it was all bad news for climate transition tech.
That would seem doubly so since, although evidently not widely appreciated, the US levies don’t apply to fossil fuel products, coal, liquefied natural gas imports, crude oil (e.g. from Canada), and materials for making petrochemicals. And, also, interestingly, uranium and some nuclear materials imports. These energy exemptions are a big concession, but they are bad for renewables, although some rare earths do also seem to be exempted.
The special 25% levy on steel will also hurt renewables like wind, although most other energy technologies as well. But the really big issue economically is the situation in relation to China. Trump initially imposed a 54% tariff (existing plus new) on Chinese imports. China then retaliated, Trump then went to for a 125% tariff. China matched it. But although Trump then called for a 90-day halt on other retaliatory exchanges, he also imposed a 25% tariff on all imported cars! But he also decided to exempt mobile phones and some electronics!
It does all feel a little chaotic, and likely to be mostly bad news in many cases, especially in relation to solar in SE Asia. But being optimistic, in terms of energy, Bloomberg at one stage felt China might benefit long term, selling more of its cheap solar tech to low income countries. India might do well too. And there was also wry talk of one solar company benefitting in the USA.
However, who knows what will happen next? Trump seemed particularly aggressive in terms of the tariffs he set for some Asian countries- e.g. Vietnam (46%) Laos (48%) and Cambodia (49%). We have yet to see how that will go down, but clearly China has not been passive. Will the trade war escalate in the next phase? If so, will the global economy cope with the ever-spiralling uncertainty? That’s usually the last thing investors want- so renewables may suffer globally. Although of course not everyone sees it as bad news: Trump has fans in odd places!
Meantime the UK, like the EU, has been none too happy about the common 10% overall levy, but complaints are mostly being kept off-air while attempts are made, notably by the UK, to get trade concessions from Trump. Although that’s unlikely. However, the UK government has been particularly worried about the special 25% levy on steel, which will hit its already troubled steel industry hard. Nationalisation (of this now Chinese owned Northern asset!) is being pushed, but, politics aside, it’s maybe not a long term solution, even with some green steel recycling tech - especially given the Trump levy.
Maybe as a bit of a displacement activity, the UK government has also been busying itself with an issue in its own backyard, unrelated to tariffs as such, but aimed at cutting costs- zonal pricing. The basic idea is to charge less for power in areas where it can be produced cheaply. That might seem simple, but it has become quite contentious. Octopus energy has led the charge, arguing that it will avoid excess power curtailment, and there is certainly likely to be strong support for cheap power from people in areas where it would be available.
However, that may not actually add up to many people. A poll of over 3000 consumers by Opinium Research, across England and Wales, found that 58% opposed zonal pricing, while only 14% supported it. It was commissioned by RenewableUK (RUK), who said that local low pricing in some windy areas would undermine investment in new wind projects in less windy but more populous areas, and in the end cost most consumers more. Another poll put those opposed even higher.
There is certainly a quite complex set of trade-off issues and much debate. Some big energy users (e.g. data centres) might see cheap power in windy areas as attractive, although there may not be enough power demand from them- the big demand is always going to be in cities. However, the best wind resources are often in remote areas, but it costs a lot to get power to these consumers, via expensive grids. Grids also have other problems. Not everyone likes them or would welcome more across cherished remote areas. Then again, at present local grids sometimes can’t handle the power from remote sources – there is too much of it at times. So power output sometimes has to be curtailed. Local pricing in key areas could avoid that- possibly at less cost than upgrading grids. Though some say local storage might be better- or other flexible balancing options.
So, the debate goes on and there are clearly points on both sides. But it has to be sorted soon, before the next renewable project CfD green power auction round. And, on balance, it does look like local pricing would cost most consumers more - UKERC say £3bn p.a. up to 2040. Although it might be helpful at some point. Indeed, UKERC Prof. Rob Gross said, ‘the key question is not whether zonal pricing has benefits, but whether the time to introduce it is now’. That seems to be a no!
The same sort of debate is also happening elsewhere, including in the USA, where green power curtailment is sometimes a big local issue, with nation-wide grid integration being seen as (another) possible remedy. A recent study noted that generators in the middle of the country tend to be economic winners, with there being a ‘large amount of wind generation installed in states like Texas, Iowa, Oklahoma, Kansas, and Illinois’. It explains that ‘during many hours of the year, this wind generation is not currently able to reach other parts of the US, so would benefit from additional transmission’. That might, in time, allow for beneficial local pricing. But that all pre-supposes a rational energy debate. Sadly, for the moment, in addition to the wild external battle over tariffs, the USA seems locked into internal political battles with Trump trying to shut down or block most things green…
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