The prospect of protectionism may increase the cost of energy transition.
The global energy transition has long been seen as a necessary shift towards sustainability, but recent economic and geopolitical challenges are causing some to question the current approach. While reducing carbon emissions remains crucial, affordability and energy security concerns are reshaping the debate, raising doubts about the feasibility of current strategies.
Balancing long-term sustainability goals with short-term economic and political realities is the challenge. The energy system operates on long investment cycles, and transitioning away from fossil fuels requires substantial infrastructure changes, capital investment, and regulatory support. Overturning decades of legacy energy systems isn't an overnight task.
The looming dilemma stems from the soaring cost of renewable energy traditions. For years, solar, wind, and battery manufacturing costs decreased due to economies of scale, technological advancements, and global supply chains. However, with governments pushing for local manufacturing and economic nationalism, the price tag for clean energy is escalating.
Professor Steven Knell of the Centre for Global Energy and Climate Policy at SOAS University of London explains, "If the energy transition is made in the UK or made in the US, it takes twice as long and costs twice as much. And it basically means that, even by the most optimistic projections, we fall short of our climate goals."
China dominates the clean energy market, controlling more than 75% of global production capacity for key technologies. By prioritizing scale and cost efficiency, China made renewables affordable, sparking global adoption. Now, United States and European countries are scrambling to reclaim market share—but at a premium.
One of the significant obstacles to the energy transition is cost volatility. While the original narrative focused on the plummeting cost of renewables, the post-pandemic era has seen skyrocketing infrastructure and technology costs. The price of commodities like solar panels and wind turbines has surged due to supply chain constraints, increased raw material costs, and intensified competition for resources.
According to Professor Knell, solar photovoltaic (PV) commodity costs have increased by nearly 25% from 2022 to 2023. While costs have receded slightly from the peak of the supply chain pinch, the price for select commodities and technologies remains elevated.
Moreover, protectionist policies in the U.S. and Europe, intended to reduce dependency on Chinese supply chains, have swelled manufacturing expenses. The result? A costlier transition than initially projected. Limited access to the most cost-effective technologies hampers progress, as governments prioritize local manufacturing and supply chains, often at the expense of efficiency and affordability.
This protectionism drives up costs for consumers and delays the transition. “Solar panels made in the US cost 40 to 50 percent more than those imported from China,” explains Knell. “Wind turbines in Europe are already 20 to 30 percent more expensive. These price increases are being passed down the chain, making the transition less affordable for everyday people.”
Beyond wealthy nations, protectionist energy policies are causing greater harm in emerging markets where affordability is of utmost importance in energy policy. These countries rely on cheap, dependable energy sources like fossil fuels. Moreover, renewable energy adoption has been increasing as costs dropped dramatically. Now, as global supply chains break apart, the concern is that higher prices could slow adoption, extending fossil fuel dependence.
Professor Knell warns that government assumptions about perpetual financial support and investment may be misguided. With costs on the rise, this support may erode, triggering pushback. “We’re living through a moment of cost inflation,” Knell explains. “Everything is more expensive, and now policymakers are choosing to make the energy transition more expensive too. The problem is, the more costly it gets, the harder it becomes to sell to voters.”
A pragmatic approach to global supply chains and market structures is needed to keep costs under control, according to Knell. Instead of outright protectionism, countries should focus on diversifying suppliers. Investments in production facilities in regions like India, Southeast Asia, and Latin America can promote a more balanced approach. Reforming infrastructure, improving market structures, and implementing supportive policies can also help.
In conclusion, a cost-effective energy transition or a politically driven one is the choice before us. “The energy transition is the single most important economic shift of our lifetime,” Knell says. “We can’t afford to make it more expensive than it needs to be.”
- The escalating cost of renewable energy traditions, such as solar and wind, is a concern due to government push for local manufacturing and economic nationalism.
- According to Professor Steven Knell, transitioning renewable energy in the UK or US increases costs and time, potentially falling short of climate goals.
- China dominates the clean energy market with over 75% of global production capacity for key technologies, making renewables affordable through scale and cost efficiency.
- Protectionist policies in the U.S. and Europe, aimed at reducing dependency on Chinese supply chains, have inflated manufacturing expenses, contributing to a more costly energy transition.
- Solar panel and wind turbine prices have surged due to supply chain constraints, increased raw material costs, and competition for resources, increasing the cost volatility of the energy transition.
- Professor Knell warns that government assumptions about financial support and investment may be misguided due to cost inflation, potentially triggering pushback as costs increase.
- A pragmatic approach to global supply chains, diversifying suppliers, and implementing supportive policies can help keep costs under control, ensuring a cost-effective energy transition.
