In today’s rapidly evolving global landscape, the quest to counter climate change is intensifying, and green technologies are at the forefront of this battle. Emerging markets, in particular, face a critical decision: whether to follow the path of advanced economies by imposing higher tariffs on green technology imports or to maintain low tariffs that could accelerate innovation, facilitate access to these crucial technologies, and bolster global climate efforts. The significance of this choice cannot be overstated as it directly impacts their ability to harness sustainable technologies for economic and environmental advancement.
The Current Landscape of Tariffs on Green Technologies
Recent data reveals a positive trend in emerging markets, where the median tariff on green technology products has declined from approximately 6 percent to 4 percent between 2017 and 2020. This reduction reflects a shift towards more open trade policies in these regions, suggesting that emerging markets recognize the importance of accessible green technologies. The World Bank Group’s study, “High Tariffs, High Stakes: The Policy Drivers Behind Firm-Level Adoption of Green Technologies,” delves into the impact of changing trade policies on firms’ decisions regarding the importation of green technologies.
Utilizing firm-level import data from 35 emerging markets between 2017 and 2021, the study examined two primary trade policy instruments: tariffs and non-tariff measures (NTMs). NTMs include a range of import regulations such as Sanitary and Phytosanitary (SPS) measures, which require specific safety standards, and Technical Barriers to Trade, which mandate labeling and technical standards on imported products. For instance, imported solar panels must often meet certain efficiency standards or be certified free of harmful materials to be compliant.
Effects of Tariffs and Non-Tariff Measures
The study identified two principal effects of increased tariffs on imports: raising the cost of importing goods and possibly causing firms to reduce the volume of imports or cease importing altogether. The findings indicate that tariffs significantly reduce the value of imports and the likelihood of firms deciding to import green technology products. In contrast, while NTMs impose compliance costs, they can also ensure that imported products meet necessary safety certifications, potentially benefiting consumers. NTMs, particularly Technical Barriers to Trade, have a slightly negative impact on import values and the probability of importing, whereas SPS measures generally do not affect firms’ imports, except in the case of solar products, where they can actually enhance perceived product quality and demand.
The opaque nature of NTMs’ impact on firm-level imports is further elucidated by the study. It reveals that while Technical Barriers to Trade may negatively influence import values and the likelihood of importation, these effects are less pronounced than those of tariffs. Conversely, SPS measures, specifically in the solar value chain, appear to positively affect import values and the probability of firms choosing to import compliant products. This suggests that while tariffs consistently act as a deterrent to importing green technologies, NTMs can at times play a more nuanced role.
The Differential Impact of Tariffs
The study’s graphs illustrate that tariffs have a more substantial impact on import values than on the likelihood of firms deciding to import. Firms exhibit particularly adverse responses to tariffs on green technology products compared to average imports, with the negative impact being especially pronounced for imports in the solar value chain and downstream segments of green value chains closer to the consumer. These findings underscore the detrimental effect that tariffs can have on the adoption of green technologies, which are essential for driving innovation and achieving sustainability goals.
Additionally, the study revealed that the adverse effects of tariffs vary significantly across firms, countries, and regions. For example, firms in ten Latin American countries experienced the strongest negative impacts of tariffs on green technology imports. In contrast, firms in India continued to increase their imports of green technologies even after tariffs were heightened. This disparity is attributed to the diversity in market receptiveness and the strategic responses of firms to changing trade policies, indicating that a one-size-fits-all approach to tariffs may not be appropriate.
Market Receptiveness and Strategic Responses
The differentiation in the impact of tariffs is further explained by firms’ strategic responses and the diversity of imported products. Firms importing a broader range of green technology products are better equipped to adapt to increasing trade costs compared to those focused on a single type of green technology. Less diversified firms tend to reduce their imports when trade costs rise, whereas more diversified firms can manage these changes more effectively. This highlights the importance of diversification in mitigating the negative effects of tariffs on green technology imports.
Moreover, the study emphasizes the role of market receptiveness in shaping firms’ responses to changing trade policies. Emerging markets with a higher diversity in green technology imports and greater strategic flexibility are better positioned to weather the adverse impacts of increased tariffs. This underscores the need for emerging markets to adopt open trade policies that facilitate the importation of a wide range of green technologies, enabling them to pursue their decarbonization goals and contribute to global climate efforts.
Decarbonization Goals and Economic Security
While advanced economies may raise tariffs to reduce reliance on foreign suppliers and promote domestic industry development, such protectionist policies are often unfeasible for most emerging markets due to their limited capacity to build domestic production capabilities quickly. The study emphasizes the interplay between decarbonization goals and economic security, highlighting the need for emerging markets to liberalize trade in green technologies. By reducing tariffs and other trade barriers, these markets can achieve their economic and environmental objectives more effectively.
Emerging markets stand to benefit significantly from liberalizing trade in green technologies, particularly through preferential trade agreements aimed at lowering tariffs and other barriers. This approach can help these countries access essential green technologies more quickly, fostering innovation and supporting the global fight against climate change. The findings suggest that while protectionist strategies may serve the domestic goals of advanced economies, emerging markets should adopt more open trade policies to advance their economic and environmental objectives.
Policy Recommendations for Emerging Markets
In our rapidly changing world, the fight against climate change is growing more urgent, with green technologies playing a pivotal role in this struggle. For emerging markets, a crucial decision looms: should they adopt higher tariffs on green technology imports like developed nations do, or keep tariffs low to speed up innovation, improve access to essential technologies, and strengthen global climate action? This decision’s importance cannot be underestimated, as it directly influences their capacity to leverage sustainable technologies for both economic growth and environmental progress. The choice between higher or lower tariffs will shape their ability to integrate green solutions effectively, impacting their contribution to global sustainability efforts. As these markets navigate this complex choice, the implications go beyond economic factors, affecting their long-term environmental policies and strategies. The path they choose will not only shape their technological landscape but also their role in the global push towards a greener, more sustainable future.
