It is widely appreciated that governments need to support renewable energy technology deployment in order to mitigate climate change. However, policy-makers face increasing pressure to link such support with other socio-economic goals, such as job creation, economic development, and poverty reduction. One such policy support mechanism is the use of local content requirements (LCRs) linked to feed-in tariffs.
LCRs regulate the extent to which certain projects must use local products and are often justified on the basis of supporting local employment and private-sector development. Manufacturing interest groups lobby for protection measures such as LCRs, whilst the international trade community, led by the World Trade Organization (WTO) seeks to limit their use. This creates a difficult choice for policy-makers, even more so because there is limited information on the impact of LCRs on job creation and economic development.
The LCR debate has centred on the rights and wrongs of protecting infant industry, with little progress being made in finding common ground. This article aims to move beyond this stalemate to understand conditions under which LCRs might be an effective tool for promoting local manufacturing. To do so, an effectiveness framework is applied to LCRs for solar photovoltaics in India’s National Solar Mission.
The analysis finds that for LCRs to be effective, they must be (1) limited in duration and incorporate planned evaluation phases, (2) focused on technologies and components for which technical expertise is available and global market entry barriers are manageable, and (3) linked to training and promotion of business linkages and linked to support for other stages of the value chain and wider services integral to success of renewable energy industries.
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