Trade Win No. 2
Trade drives sustainable energy
Global energy demand is expected to increase at least to 2050 as countries throughout the world face a common challenge—how to meet future energy needs while transitioning to a clean energy economy. International trade has helped to propel renewable energy production, cooperation on technology, and regulatory standardization. Continued momentum in international trade is essential for continued investment and global deployment of sustainable energy.
High income countries have had unprecedented investment in clean tech manufacturing over the past five years, namely incentivized by government policies. In the United States, policies related to the Inflation Reduction Act and Bipartisan Infrastructure Law helped incentivize sustainable energy transitions. The European Union, Japan, South Korea and many other countries have provided similar incentives for their sustainable transitions. According to the Business Council for Sustainable Energy, 2024 global investment in renewable energy, EVs, and power grid investment exceeded $2 trillion.
International trade brings clean technology manufacturing and renewable energy production and deployment to scale in at least three ways. First, trade enables renewable energy investors and producers to access larger markets, which can lead to economies of scale in renewable energy production. Second, trade supports the integration of variable renewable energy sources, such as hydrogen, wind and solar. Cross-border interconnections can facilitate the pooling of resources, which further complement renewable output and provide necessary ancillary services.
Third, international trade encourages the development of regional power markets, which can optimize energy systems and enable greater use of energy sources with lower emissions. Regional integration across the South Asia electricity market and across the Pan-Arab electricity market were both facilitated by international trade and regional cooperation. This regional collaboration can have significant environmental co-benefits and assist in adaptation to climate change through supply diversification.
Policymakers face the need to decarbonize while preserving industrial competitiveness. They must address the need to adopt often high-cost clean energy technologies while also continuing efforts to develop their economies. Many developing and less-developed economies hold significant natural mineral resources essential to the clean transition and face increased energy demand in their own regions. The price competitiveness driven by international trade and investment can help make these transitions economically viable.
The challenges remain in meeting the speed and costs of energy transition as countries face severe and intensifying weather and climate vulnerabilities. WTO policies and regulatory-related efforts, such as the Aid for Trade Initiative and Trade Policy Tools for Climate Action have worked well and should continue to support development of the global energy sector in manufacturing and services. As individual country policies and incentives remain tentative as to their longevity and breadth, WTO-led trade policies that align international standards and regulations will offer greater certainty and facilitate the clean energy transition for both governments and individual investors in these sectors.
Trade plays a pivotal role in facilitating the production and deployment of renewable energy by enhancing market access, reducing costs, integrating variable energy sources, and fostering regional cooperation. In sum, trade is a key contributor to a more sustainable energy future.
