It Should Be a Breeze: Harnessing the Potential of Open Trade and Investment Flows in the Wind Energy Industry

by Jacob Funk Kirkegaard, Peterson Institute for International Economics
and Thilo Hanemann, Rhodium Group
and Lutz Weischer, World Resources Institute

December 2009

Wind energy is among the most important commercial technologies for climate change mitigation and is experiencing rapid growth. The recent spike in commodity prices and the financing problems related to the 2008–09 financial crisis had only a negligible effect on the industry's global growth rates. The expansion of wind energy is mainly driven by government support aimed at not only reducing emissions and energy imports but also nurturing a new industry that promises substantial localized job creation. This working paper maps out the structure and value chains of the wind power industry, analyzes its increasing globalization via cross-border trade and investment flows, and formulates recommendations for policymakers for the design of investment and trade policies to help realize wind energy's potential.

The authors show that demand for wind energy through long-term government support policies creates the basis for local supply of wind capital equipment and services and associated local job creation; policies that put a price on carbon will further help to make wind energy more competitive and increase the overall demand for turbines and equipment. They find that cross-border investment rather than trade is the dominant mode of global integration. Principal barriers to global integration are not at-the-border tariffs but rather several nontariff trade barriers and formal and informal barriers that distort firms' investment decisions, for instance, local content requirements, divergent national industrial standards and licensing demands, and in particular political expectations. As intellectual property plays only a very limited role in the cost structures of the wind industry and technology is widely available for licensing, intellectual property rights cannot be considered a major impediment for market participation for firms from both developed and developing countries. The authors emphasize that due to its specific characteristics, a globalized wind industry will create lasting and highly localized employment opportunities. Credible long-term commitments coupled with a reduction or elimination of existing barriers to cross-border trade and investment are necessary to harness the full potential of globalization in reducing the price and increasing the global deployment of wind energy.

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