Trade in Renewable Energy Commodities among Regional Comprehensive Economic Partnership Countries: An Exploratory Study

Abstract

Renewable energy has become the optimal solution for mitigating the impacts of climate change and maintaining sustainable economic growth. Given the fact that Asia is a world leader in the manufacturing sector and the new driving force for global economic growth, the development of renewable energy is even more crucial for Asia-Pacific countries to ensure the security of energy supply and control the emissions of greenhouse gases. Although governments have offered a wide variety of administrative and financial support for the renewable energy industry, its expansion falls behind the schedule of National Determined Contributions (NDCs) which secures the achievement of the long-term goal of the Paris Agreement. Extra efforts are needed to boost renewable energy development, and trade in renewable energy commodities can play an important role in this process. The first paper in this thesis aims to provide empirical evidence of the positive effects of the renewable energy commodities trade on renewable energy investments. It employs a two-step stochastic frontier analysis (SFA) to investigate and decompose the technical efficiency of investments in renewable energy electricity generation capacity. By using panel data consisting of 14 countries from 2004 to 2019, it finds that the average technical efficiency of the capacity investment was approximately 42 per cent in 2004 and increased to 58 per cent in 2019, which implies that invested capital is not used efficiently enough in installing new renewable energy power generation capacity. Furthermore, the impact of R&D investment in early stages on construction capacity is currently undervalued. Most importantly, the results show that imports of renewable energy goods, as well as innovations in the renewable energy sector, can significantly improve the technical efficiency of the capacity investment. The second paper applies a gravity model with a metafrontier approach to evaluate renewable energy commodities trade performance among RCEP members. It divides 11 countries into two groups based on their export volumes of renewable energy commodities to calculate each country's technical efficiency with respect to each group frontier (TEG) and its total technical efficiency with respect to the metafrontier (TEM). First, it finds that no country's average TEG exceeds 50 per cent, while TEGs in both groups gradually increase from 2006 to 2015. Second, the result supports the assumption that these two groups have different frontiers for trade, and the higher export volume group adopts relatively more effective technology as its group frontier is closer to the metafrontier than its counterpart. Combined, the higher export volume group has higher TEMs, but the highest TEM only scores at 37.1 per cent. The third paper is designed to figure out which factors can influence the trade performance of renewable energy goods, especially the implicit trade cost. This paper uses a more complicated gravity equation with a one-step SFA method to analyse China's export frontier and export efficiency of renewable energy commodities to other RCEP members. Firstly, it reaffirms the finding in the second paper that significant implicit trade costs exist, namely the trade inefficiency term, in China's exports. Secondly, policy instruments related to the renewable energy sector in the exporting country have a significant positive impact on improving export efficiency. Thirdly, the size of the renewable energy market in the exporting country has a mixed effect on renewable energy commodities exports. Finally, the estimation reveals that the innovation process in China becomes one of the implicit trade costs in its renewable energy commodities export. Show more