NAFTA & OPEC Meet GREFTA

May 7, 2008

With oil at $120, the emergence of a carbon friendly US presidential race, and an explosion of investment, research and commercialization of renewable energy technologies and resources, I’m advocating that the next president consider pressing for an international free trade agreement among both developing and developed markets to support global commerce around alternative energy solutions.

How hard could this be? And why can’t there be a Global Renewable Free Trade Agreement?

GREFTA would be more of a multilateral pact, like NAFTA. The Global Renewable Free Trade Agreement will seek to expedite the process of grid parity for all commercialized renewable energy technologies and be willing to utilize fair trade to forward the deployment of renewable energy and conservation technologies, as a counter to both peak oil and OPEC — both global threats with multiple prongs (Human, Social and Economic).

GREFTA members would recognize that those with the resources and means of production in one technology may alternatively be geographically and topographically better suited for a portfolio of technologies outside of their core manufacturing competency or resource proximity. I am not well informed on the mechanics of regional competitive advantages across the manufacturing of renewables (wind, solar, hydro, geothermal, biofuels etc…) but I am forced to consider of the vast capacity for solar that is being pursued in China among others. I imagine, as exampled by the race for solar grid parity in China, that there will be regional over capacities of supply and production in materials and technologies that will be strongly demanded in other countries. A Global Trade Pact would dampen regional overcapacity concerns–concerns that might constrain investment–and (theoretically) encourage further economies of scale. For example, if GE felt it could sell more turbines despite demand constraints in the US, why wouldn’t they continue their aggressive investment to build for the rest of the world. Furthermore, while I am unaware of regional trade barriers, foreign exchange effects, and other sovereign risks, the lifting of any and all remaining trade barriers in renewables would theoretically allow for more perfect competition, and better functioning of global markets in the supply and demand of renewable portfolios. The trade pact would theoretically allow for traditional economic advancement brought about through free trade, competitive advantage, and based on the work Michael Porter has done around how industries are largely successful as a function of the competitive advantages associated with their national, geographical and cultural topography. i.e. Japan got really good really early on efficiency because they are so limited in natural resources and culturally are conditioned to preserve nature.

The mix of alternatives is wide, but the optimal supply of each, at a global scale may not be clearer until a larger portion of the total energy mix becomes comprised of alternatives and until more countries seek to enhance their renewable portfolio standards. (Chart below from EPIA.org)

In the long run, I suppose the GREFTA consortia would seek to be inclusionary, however for affect, and for the purpose of creating a meaningful and effective treaty, I imagine one would start with the current largest renewable capacity suppliers (I was inspired by this chart.) This would include: China, Germany, Spain, US, India, Japan….

Forces driving these parties together, and prodding them to remain in accord include:

  • Economic instability caused by cartel prices on oil, during the transition to a Carbon-Lite global economy.
  • Continued threat of Peak Oil
  • Pending global policy shifts on Carbon Pricing
  • Economic prosperity associated with disruptive industrial creation around renewables,
  • Unilateral economic benefits of being both an importer of equipment and services, and the benefits of installing zero marginal cost energy alternatives. (I know that neither wind, solar, geo, hydro… have zero marginal costs, but the framing around the technologies is that they do not depend on a finite resource with an advancing price, nor a resource subject to currency risks or geopolitical risks.
  • “We hang together or we hang alone” mentality

In any event, this thought was a quick flash, and when I Googled it I surprisingly found nothing directly related, but it seemed on first glance something worth pining over.