[Smart Grid Market Research] APEC Tariffs & Renewables - Zpryme Smart Grid Insights

SMART GRID INSIGHTS
OCTOBER 2012

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APEC TARIFFS &
INTELLIGENCE BY ZPRYME | ZPRYME.COM
© 2012 ZPRYME RESEARCH & CONSULTING, LLC. ALL RIGHTS RESERVED. RENEWABLES

Table of Contents

Executive Summary ................................................................... 2
APEC Tariff Reductions .............................................................. 2
Technological Effect .................................................................. 3
Renewable Energy Market Effect............................................ 4
Economic Effect ......................................................................... 5
Results........................................................................................... 6
Recommendations .................................................................... 6

1 [STANDARD] ZPRYME SMART GRID INSIGHTS APEC Tariffs & Renewables | October 2012

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Executive Summary output. 1 The region also consumes 60% of the world’s
energy, making the area a focus of global energy growth,
The Asia-Pacific Economic Cooperation recently reached especially as the region becomes more industrialized. 2 As
a historic tariff reduction agreement on renewable energy such, Asia-Pacific “is considered to be the growth engine
items. Tariffs between APEC member states will be of the world”. 3 APEC summits frequently concentrate on
reduced to 5% or lower by the end of 2015 on listed tariffs, as well as the terms of tariffs, which promote the
renewable energy items. 54 items were listed for inclusion, ability of APEC members to reach collective goals such as
all of which will benefit APEC members and have a green growth and liberalizing trade. In fact, tariffs on
positive effect on both their sustainable energy goals and renewable energy were recently discussed at an APEC
their economies. Tariff reductions will first affect the summit on Russky Island in Russia with a theme “Integrate
renewable energy market and will include manufacturers, to Grow, Innovate to Prosper”. 4
vendors and customers. All three groups will benefit from
lowered prices, increased supply and enhanced Tariffs are a tax imposed on imported goods. Protective
innovation. In addition, the nation states, and the APEC tariffs are intended to protect an industry from foreign
region as a whole, will benefit from increased economies competition by artificially raising prices on imported items.
by way of additional jobs, increased investment, and This allows domestic items to be sold at a higher price
increased growth. By evaluating the effects of other tariff which enables domestic firms to maximize profits. For that
reduction agreements, such as those achieved through reason, APEC has renewed its commitment to end barriers
NAFTA and other APEC agreements, predictions regarding to trade investments, such as tariffs, export restrictions, and
the outcome of the tariff reduction can be made. other protectionist measures to encourage a free market
zone between its members. 5 Currently, tariffs between
The complete renewable energy item list of 54 products APEC nations on renewable energy products are very
can be found at the following url: high, as much as 35% on some products. 6 APEC nations
attended the Ministerial Meeting on September 5th and
www.apec.org/Meeting-Papers/Leaders-Declarations/2012/2012_aelm/2012_aelm_annexC.aspx 6th, 2012 and completed a decade long project which
involved the compilation of a list of 54 items to be
APEC Tariff Reductions included in a renewable energy tariff reduction
agreement which will result in the reduction of the tariff to
The Asia-Pacific Economic Cooperation, or APEC, is a 5% by 2015.
collection of twenty-one member nations with advanced
and rising economies whose aim is to collaborate on
economic issues, such as growth and job creation. APEC 1 www.themoscowtimes.com/news/article/apec-agreement-reduces-tariffs-on-54-green-
currently represents over 40% of the world’s population, technologies/467814.html
2 ecoseed.org/business/asia/15571-apec-leaders-emphasize-green-technology-in-summit
44% of its international trade and 54% of total economic 3 www.tariffcommission.gov.ph/asia.html
4 www.themoscowtimes.com/special/apec/2012/apec-ministers-work-on-green-list.html
5 www.apec.org/Meeting-Papers/Ministerial-Statements/Annual/2012/2012_amm.aspx
6 www.asianewsnet.net/home/news.php?id=36131&sec=1



The reasons renewable energy tariffs were discussed at the tariff up to 21%, while technology for air pollution
APEC summit are two-fold. First, renewable energy tariffs treatment experiences a 20% tariff. Finally, technology
promote the economic growth of its member nations used to treat hazardous and solid waste is also facing up
through improved trade. Secondly, APEC has committed to 20% tariffs in the region. The first effect of the tariff
itself to promote “green economy policies as part of the reductions will be products with decreased prices being
plan to increase environmental protection and sustainable available on a much larger scale, as well as an increase in
development”. 7 Lowering the tariffs from 35% to 5% will competition among business entities. More products will
result in numerous economic benefits for all of the APEC be sold to more customers and increased sales will
nations. Additionally, the targeting of renewable energy promote the development of new and improved product
products will help the sustainable energy market flourish, innovations, which will result in further market growth.
create growth, and spur innovation in the field. “This is Overall, decreasing tariffs between APEC members will
really a significant achievement in that it shows how APEC enable increased trade in renewable technologies, and
can lead...It allows us to accomplish the twin goals of allow the further development and improvement of the
liberalizing trade and green growth” said Demetrios current products and services available to the market and
Marantis, deputy US trade representative. 8 APEC's for the future renewable energy markets as a whole.
agreements are important not only for APEC nations, but
for the entire world because of the effects the lowered APEC's tariff reduction will also spur further adoption of
tariffs will have on renewable energy products and renewable energy products by virtue of the increase in the
technology. number of products that can be introduced into the
marketplace. In addition, the removal of the tariff will
Technological Effect drastically reduce the price of renewable energy
technology. Projects being conducted in any part of the
Over the course of several years, APEC nations drafted a APEC region will have the option of choosing from an
list of technologies that would benefit from reduced tariffs. increased variety of products at a lower cost. The
Every APEC member contributed to, as well as ratified, the advantages of lowered tariffs will also include increased
list. The APEC list of environmental goods includes an profits for the utilities due to the reduction in the price of
assortment of renewable energy products. Currently, renewable energy items and a decrease in the cost of
renewable energy technologies in the region, such as solar goods sold. Subsequently, an expansion in the market
panels and wind turbines, are subject to tariffs as high as should encourage the addition of substantial investment
35%. Tariffs on environmental testing and monitoring streams to implement pilot projects, partnerships, and joint
equipment between APEC countries currently face up to ventures in the region. As the Smart Grid is deployed in the
20%. Technology for waste water treatment is subject to a APEC region, it is anticipated that manufacturers will work
with governments and national utility firms to address their
unique special needs and challenges.
7 www.asianewsnet.net/home/news.php?id=36131&sec=1
8 www.themoscowtimes.com/news/article/apec-agreement-reduces-tariffs-on-54-green-
technologies/467814.html



In addition, the collaboration of manufacturers with scale and establish competitive advantages. An increase
different countries will encourage standards to insure the in the number of manufacturers diving into the
interoperability of devices across the regions. Once marketplace will initiate a competition for innovation,
interoperability standards have been established, improved efficiency and better products at a lower price.
manufacturers will have the ability to streamline their
operations and focus on value-added services, such as Another industry group in a position to benefit from APEC
increasing the functionality of the devices. Both will tariff reductions is retail vendors. Since they have access to
improve the efficiency of the Smart Grid as a whole, and the entire APEC supply chain, they are able to purchase
will encourage the widespread adoption of renewable renewable energy products at a lower price. This, in turn,
energy technologies throughout the APEC nations. enables them to offer a larger variety of products to their
end-users, with a corresponding lower price to them. The
Renewable Energy Market Effect win-win results translate into higher profit margins for the
vendors. In addition, retail vendors have an added
As mentioned earlier, lowering the tariff on renewable opportunity to utilize foreign components from the APEC
energy products will help the market flourish and create supply chain to create new products or services to meet
growth and innovation in the field. One of the chief the needs of the marketplace. The vendors also enjoy the
beneficiaries of this phenomenon will come from the ability to sell their goods to a larger APEC market. This
manufacturing industry. “Trade and investment allows them to benefit from both an increase in supply
liberalization in environmental goods will help APEC (supply of products or components from the entire APEC
businesses and citizens access important environmental region), and an increase in demand (from the entire APEC
technologies at lower cost, which in turn facilitate their marketplace). In fact, APEC stated in their Ministerial
use, and benefit the environment”. 9 Manufacturers benefit Meeting notes that businesses involved in the renewable
from the lowered tariffs because decreased costs result in energy field will directly benefit from the tariff reduction. 11
increased sales. In addition, since the manufacturers have
the ability to sell to all APEC nations, they have the ability One final group that will benefit from reduced tariffs is
to drastically increase their market penetration. The consumers. When increased tariffs are imposed,
manufacturers will also benefit from a reduction in consumers are forced to pay a higher price for renewable
technical barriers to trade, thus being able to share and energy goods to cover the cost of the government fees
learn from increased trade. This practice allows for further produced by the tariff structure. This increases the price
innovation, which will enable increased energy efficiency, not only at the point-of-sale but throughout the entire
a wider energy mix, and a “transition to a lower climate value chain. When the APEC tariff is reduced, consumers
economy with sustainable growth objectives”. 10 Finally, benefit from a reduction in price, as well as in increase in
the tariff reductions enable nations to attain economies of the supply of products. An even tastier benefit will accrue

9 www.apec.org/Meeting-Papers/Ministerial-Statements/Annual/2012/2012_amm.aspx
10 www.apec.org/Meeting-Papers/Ministerial-Statements/Annual/2012/2012_amm.aspx 11 www.apec.org/Meeting-Papers/Ministerial-Statements/Annual/2012/2012_amm.aspx



with an eventual reduction in energy prices and a broader and creates jobs wherever they are manufactured,
energy mix. Consumers will also be able to purchase including in the United States”. 12
equipment not only at a lower cost but with added
features. As this cheaper and more efficient equipment is Economies will also benefit from the favorable investment
utilized, greater efficiencies are afforded for utilities that terms that the tariff reduction establishes. Investment is
ultimately return even more savings to the consumers. encouraged through enacting favorable terms of free
Finally, consumers and their future heirs will benefit from an trade. Increasing investment in the APEC nations spurs
improvement in their environment. As more renewable further development and growth of the renewable energy
energy products are utilized, the APEC nations are better industry, increases production, decreases prices, and
able to meet sustainable energy goals, such as reducing increases innovation. APEC has created an Investment
pollution, greenhouse gas emissions and the overall Facilitation Action Plan to underline the importance of
carbon footprint. focusing on investment in numerous ways, such as
transparency, international standards, IT sharing and
Economic Effect investment dispute resolution policies. APEC nations
understand that improving the terms of trade will
Lowering tariff reductions from 35% to 5% will result in encourage investment and promote a free market
numerous benefits for all the APEC nations, the first of economy in accordance with its mission.
which will be job growth and an increase in GDP. The US
Trade Representative states: “This historic outcome will APEC nations will also benefit from increased growth and
make a significant contribution to the Obama increased innovation. The September 2012 meeting
Administration's goals to increase exports and jobs, as well convened under the theme “Integrate to Grow, Innovate
as its strong commitment to promoting green growth and to Prosper”. Leaders at the meeting agreed that
sustainable development.” Countries benefit from free international trade is a key component of sustainable
trade primarily through economic growth. As growth. Russian President Vladimir Putin stated “APEC
manufacturers expand their operations to meet the rising states should work together to address the crucial
APEC market demand, jobs are created. In fact, after challenge of supporting growth by promoting innovation
NAFTA approved the reduced tariffs, the jobs that were and the exchange of ideas”. 13 Other nations also affirm
created are at a higher paying rate than they were. their own dedication to improving demand in their
Likewise, as the larger market encourages innovation, countries and cutting debt, thus stimulating global
workers receive opportunities to become more skilled and economic growth. The meeting reaffirmed the 21-nation
specialized, thus offering growth and advancement in the membership's belief that through working together and
job market. United States Secretary of State, Hillary Clinton focusing on international free trade, both the economies
states, “the APEC reduction of tariffs is positive for the
United States. It makes green products more affordable 12 www.thefuturebuild.com/apec-cuts-tariffs-on-green-products-38740/news.html
13 www.themoscowtimes.com/news/article/apec-agreement-reduces-tariffs-on-54-green-
technologies/467814.html



of individual nations, and the global economy as a whole, ratification, with US exports rising and 900,000 jobs being
can be strengthened and experience economic growth. 14 added in the US, reaching 2.9 million from 1993-2003. 16
In short, “We reiterate our strong commitment to
implement 2010 and 2011 leader's instructions to achieve The history of APEC tariff reductions in other areas also
balance, inclusive, sustainable, innovative, and secure demonstrate the potential in APEC renewable energy
growth, and build a seamless regional economy by reductions. APEC was formed in 1989 and members have
strengthening a regional economic integration, experienced average tariff reductions of 5-16% on $2.3
expanding trade, promoting green growth and trillion in goods and services. Total trade has grown 395%
advancing regulatory coherence”. 15 during this time, with an average GDP of APEC nations
tripling. Employment opportunities and economic growth
Results also greatly improved. Due to APEC's focus on trade
expansion, trade increased $1.7 trillion in 1989 to $8.44
When considering the implications of reducing tariffs on trillion in 2007. 17 As tariff reductions are applied to
renewable energy products, it is useful to examine the renewable energy products, member nations are likely to
effects of other situations where tariffs were reduced. One experience similar benefits, such as increased trade of
example of reducing tariffs is in the NAFTA agreements. included products, increased GDP, and increased jobs. In
The North American Free Trade Agreement established a fact, these benefits are likely to be experienced by nations
ten year time frame for gradual tariff reductions between other than APEC members. Secretary of State Hillary
the United States, Canada and Mexico. Fully implemented Clinton states, “We hope this decision will inspire other
in 2008, NAFTA resulted in an immediate increase in both trading groups to emulate APEC's record of trade and
trade and investment. Mexico experienced a 100+% in innovation”. 18
exports, 93% of which was directly due to the NAFTA
agreements. Canada experienced a 58% increase, and Recommendations
the United States experienced a 55% increase in exports
directly due to NAFTA. Increased trade also created an APEC has made tremendous progress in lowering tariffs on
increase in available products and a decrease in product renewable energy products. As these tariff reductions of
price. In addition, NAFTA resulted in an increase in jobs, up to 30% are enacted, several results are likely. First,
many paying at a higher rate. Shipping costs also reducing tariffs will cause the price of imported items to
decreased, and over time, the industry has become more decrease. When the amount of the tariff fee is removed
competitive, better able to invest in improvements and from the price of the item, the overall cost of the item will
more efficient. In fact, the United States has enjoyed the decrease. This will make importing renewable energy
longest period of economic growth since NAFTA's
16 www.ustr.gov/about-us/press-office/press-releases/archives/2002/january/nafta-partners-speed-
elimination-tariffs-
17 www.ustr.gov/about-us/press-office/fact-sheets/2012/september/apec-environmental-goods
14 www.saudigazette.com.sa/index.cfm?method=home.regcon&contentid=20120910135599 18 www.radioaustralia.net.au/international/radio/program/connect-asia/apec-nations-to-reduce-
15 www.apec.org/Meeting-Papers/Ministerial-Statements/Annual/2012/2012_amm.aspx tariffs-on-goods/1013332



products more attractive to foreign firms and supply will
increase. Overall trade will increase and more renewable
energy products will be available in the renewable energy
marketplace. As more products are available, the market
will innovate and a larger variety of products will be
available. Firms that are able to develop a competitive
advantage through specializing and creating innovative
products will be best poised for growth in the
marketplace. Lower prices and a variety of available
renewable energy products will also allow more customers
to participate in the market and will increase demand. In
addition, utilization of affected renewable energy
products will produce lower energy prices overall.

This trend represents numerous opportunities for those
interested in trading in the APEC region. First, the reduction
of tariffs present increased opportunities for manufacturing
and investment. The market will expand from numerous,
single and independent nations to one large integrated
market. The firms that have established themselves in the
APEC region by 2015 when the tariffs are reduced will be
best positioned to take advantage of the opportunities for
growth. This is an excellent time for vendors to form
partnerships, participate in pilot projects, expand
operations and invest in APEC countries' renewable
energy markets. By performing strategic partnerships now,
the firms will be able to offer products particularly well
suited and specialized to the individual nation's needs. In
addition, many of the member states prefer to trade with
firms that are well established in their region and have
worked with them on past projects. Firms that establish
manufacturing facilities, thus creating jobs in that area
and helping the regional economy, will also experience
growth as the tariffs are reduced.



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