The Energy Transitions Commission (ETC) has released a briefing note highlighting the challenges posed by concentrated clean energy supply chains and the role of carbon pricing in the global energy transition.
The briefing note titled “Global trade in the energy transition: principles for clean energy supply chains and carbon pricing” by the commission delineates an optimal approach to two critical trade-related concerns: the development of domestic clean energy supply chains, and the global agreement on carbon pricing and carbon border adjustment mechanisms (CBAMs).
These are aimed at driving the decarbonisation of sectors that are difficult to transition away from fossil fuels.
The ETC’s report comes at a time when the cost of several clean energy technologies has significantly decreased. Solar PV module prices have seen a 94% reduction since 2011 while lithium-ion battery prices have dropped by more than 92% since 2010.
In 2024, almost two-thirds of electric vehicles sold in China were more affordable than their internal combustion engine counterparts. The country’s progress in clean technologies is attributed to strategic vision, low capital costs, technological innovation, and entrepreneurship, rather than solely to low labour costs.
In response to China’s dominance in the clean technology sector, many countries are considering nearshoring to diversify their supply chains.
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By GlobalDataETC chair Adair Turner said: “In an ideal world, free from geopolitical tensions or supply chain risks, China’s stunning technological progress and cost reduction would be welcomed as enabling a faster and cheaper energy transition worldwide.
“But there are economic and security-related reasons for seeking to develop domestic supply chains. Well-designed policy can ensure that those objectives are met in a way that drives further technological progress and cost reduction.”
The ETC proposes six principles for effective policy-making in this area: aiming for diversified supply chains, clarifying the different dimensions of “security”, tailoring policy by technology, basing tariffs on factual analysis in compliance with World Trade Organization rules, focusing on the location of employment and value-add, and working with China to increase climate finance flows to lower-income countries.
The briefing also addresses the necessity of carbon pricing to make low-carbon technologies economically viable in “hard-to-abate” sectors, such as steel and cement. While carbon pricing is in place in 53 countries, covering more than 20% of global emissions, only the EU has implemented prices high enough to significantly impact decarbonisation economics.
The ETC supports the EU’s implementation of a CBAM and its recent commitment to enhance its robustness.
The briefing suggests seeking international agreement on carbon intensity measurement standards, providing technical assistance for carbon pricing deployment in developing countries, and allocating EU CBAM revenues to support climate finance in lower-income countries.
ETC vice-chair Faustine Delasalle said: “The world is entering a new industrial era powered by clean energy. Clean industrial projects are flourishing in diverse geographies, opening opportunities for new trade dynamics. But well-designed policies, including carbon pricing, supply-side financial incentives, and demand-side regulations, are essential to make projects viable and precipitate final investment decisions.”
