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Promoting green industrial development through local content requirements: India's National Solar Mission

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  • Oliver Johnson

Abstract

In order to make renewable energy technology deployment strategies politically acceptable, many countries are linking them to other socio-economic goals. A controversial industrial policy tool that is increasingly popular is the use of local content requirements (LCRs). These 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. 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 article 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. Policy relevance 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. Policy makers are faced with a difficult choice as manufacturing interest groups lobby for the establishment of protection measures such as LCRs whilst the international trade community led by the World Trade Organization (WTO) seeks to limit their use. This difficulty is amplified by the limited information on the impact of LCRs on job creation and economic development. In this context, this article documents the use of LCRs in India's National Solar Mission and seeks to understand the conditions under which LCRs are an effective policy tool for building a competitive local manufacturing industry.

Suggested Citation

  • Oliver Johnson, 2016. "Promoting green industrial development through local content requirements: India's National Solar Mission," Climate Policy, Taylor & Francis Journals, vol. 16(2), pages 178-195, March.
    • Handle: RePEc:taf:tcpoxx:v:16:y:2016:i:2:p:178-195
    DOI: 10.1080/14693062.2014.992296
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    1. World Bank, 2010. "World Development Report 2010," World Bank Publications - Books, The World Bank Group, number 4387, December.
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    1. Münch, Florian Anselm & Scheifele, Fabian, 2023. "Nurturing national champions? Local content in solar auctions and firm innovation," Energy Policy, Elsevier, vol. 179(C).
    2. Andres, Pia, 2023. "Industrial policy and global public goods provision: rethinking the environmental trade agreement," LSE Research Online Documents on Economics 117899, London School of Economics and Political Science, LSE Library.
    3. Rafał Trzaska & Adam Sulich & Michał Organa & Jerzy Niemczyk & Bartosz Jasiński, 2021. "Digitalization Business Strategies in Energy Sector: Solving Problems with Uncertainty under Industry 4.0 Conditions," Energies, MDPI, vol. 14(23), pages 1-21, November.
    4. Boute, Anatole & Zhikharev, Alexey, 2019. "Vested interests as driver of the clean energy transition: Evidence from Russia's solar energy policy," Energy Policy, Elsevier, vol. 133(C).
    5. Andres, Pia, 2023. "Industrial policy and global public goods provision: rethinking the environmental trade agreement," LSE Research Online Documents on Economics 117900, London School of Economics and Political Science, LSE Library.
    6. Scheifele, F. & Bräuning, M. & Probst, B., 2022. "The impact of local content requirements on the development of export competitiveness in solar and wind technologies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 168(C).
    7. Hansen, U.E. & Nygaard, I. & Morris, M. & Robbins, G., 2020. "The effects of local content requirements in auction schemes for renewable energy in developing countries: A literature review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 127(C).
    8. White, Lee V. & Hughes, Llewelyn & Lyons, Chell & Peng, Yuan, 2021. "Iterating localisation policies in support of energy transition: The case of the Australian Capital Territory," Energy Policy, Elsevier, vol. 158(C).
    9. Hastings-Simon, Sara & Leach, Andrew & Shaffer, Blake & Weis, Tim, 2022. "Alberta's Renewable Electricity Program: Design, results, and lessons learned," Energy Policy, Elsevier, vol. 171(C).
    10. Mariano O. Birlain-Escalante & Jorge M. Islas-Samperio & Ángel de la Vega-Navarro & Arturo Morales-Acevedo, 2023. "Development and Upstream Integration of the Photovoltaic Industry Value Chain in Mexico," Energies, MDPI, vol. 16(4), pages 1-27, February.
    11. Münch, Florian Anselm & Marian, Adela, 2022. "The design of technical requirements in public solar auctions: Evidence from India," Renewable and Sustainable Energy Reviews, Elsevier, vol. 154(C).
    12. Behuria, Pritish, 2020. "The politics of late late development in renewable energy sectors: Dependency and contradictory tensions in India’s National Solar Mission," World Development, Elsevier, vol. 126(C).
    13. Matthias Brönner & Skander Salah & Markus Lienkamp, 2020. "Production Challenges in Least Developed Countries," Challenges, MDPI, vol. 11(1), pages 1-20, January.

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