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International Trade with Solar Energy Technology Components

Evidence on the Structure and Determinants?

34th IAEE International ConferenceWednesday June 22nd 2011

Session 63

Felix GrobaGerman Institute of Economic Research Berlin

Department of Energy, Transport and EnvironmentSupported by Heinrich Böll Foundation

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Motivation & Research Hypotheses (1)

20. Apr 2023 2

Source: own calculations, Data retrieved from UN COMTRADE, WITS DATABASE

24.7 bn. $

12.5 bn. $1.9 bn. $

1.8 bn. $

1.4 bn. $

3.1 bn. $

2.8 bn. $

1.5bn.$

2.3 bn. $

1.1 bn.$

24.7 bn. $

12.5 bn. $1.9 bn. $

1.8 bn. $

1.4 bn. $

3.1 bn. $

2.8 bn. $

1.5bn.$

2.3 bn. $

1.1 bn.$

24.7 bn. $

12.5 bn. $1.9 bn. $

1.8 bn. $

1.4 bn. $

3.1 bn. $

2.8 bn. $

1.5bn.$

2.3 bn. $

1.1 bn.$

Figure 1. Development of Solar energy technology component exports by country group 1996-2008 and market structure 2008

• Trade not respected in description and analysis global market development. • Significant trade increase since 2001 (+600% since 1996).• OECD (EU) countries dominant exporting and importing markets.

Increasing importance of China and India. Dominant trade directions North-North and South-North. North-South and South-South trade remains limited.

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Motivation & Research Hypotheses (2)

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H2: A regulatory environment supportive of renewable energies increases imports of solar energy technology goods.

What determines trade with solar energy technology components ? Is there evidence on the Porter hypothesis?

What role do regulation and trade barriers in importing countries play in determining solar energy technology exports?

H1: Stringent environmental regulation and renewable energy policy frameworks explain high exports of solar energy technologies.

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II. Empirical Model and Estimation Method

Backup

Table of Content

I. Literature on Environmental Regulation and Trade

III. Data and Descriptive Statistics

IV. Estimation Results

V. Conclusion

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Literatur on Environmental Regulation and Trade

Porter Hypothesis [Porter, van der Linde (1995)]• Regulation triggers technological innovations and increases competitiveness

(strong version).• Ambiguous empirical results: Antweiler, Copeland [2001]; Harris [2002]; Jug,

Mirza [2005].

Weak Porter Hypothesis [Jaffe et. al (1995)]• Environmental regulation stimulates innovation (no focus on competitiveness

impact).• Positive empiricial results: Popp [2006]; Devries, Withagen [2005].• Sectoral analysis.

5

Research gap:• Detailed analysis of trade with renewable (solar) technology components.• Analysis of policy environment in importing countries.

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II. Empirical Model and Estimation Method

Backup

Table of Content

I. Literature on Environmental Regulation and Trade

III. Data and Descriptive Statistics

IV. Estimation Results

V. Conclusion

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Empirical Model and Estimation Method (1)

(1)

(3)

7

Xijt = trade flow ß = coefficientsYijt = economic mass j Dij = distance

1 2

30ijt

ß ßit jt

ijtßij

Y YX ß

D

0 1 2 3 4 5ln ln ln ln ln ln lnijt it jt it it jt i j t ijtX ß ß Y ß Y ß R ß I ß R d d d

FEGLS:

(2)

• Inconsistent under error heterogeneity. • Inconsistent under persistent zero trade flows.

Poisson Pseudo Maximum Likelihood:

• Provides consistent estimators (Santos Silva and Tenreyro 2006). • Respects zero trade flow.• Successfully implemented (e.g. McGee 2008, Siliverstovs 2009).• fixed effects on exporter and importer countries (di, dj) to account for

multilateral trade resistance.

0 1 2 3 4 5ln ln ln ln ln ln ln lnijt it jt it it jt i j t ijtX ß ß Y ß Y ß R ß I ß R d d d

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Empirical Specification

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• Balanced panel of bilateral export flows from 1999-2007.

0 1 2 3 4 5 6

7 8 9 10 13

14 15

ln( ) ln( ) ln( ) ln( ) ln(distance )

ln( ) ln( )

_

ijt it jt it jt ij ij

it it it

jit

SolarEXP GDP GDP POP POP language

IndexEnvreg SolarElectShare RDsolarPOP REPolicy

Import Tariff IndexEnvre

16 ln( )

ln

jt it

i j t ijt

g REElectShare

d d d

Estimated Model:

• Solar technology exports (21 OECD countries 129 importing countries).• General trade controls.• Proxies of environmental regulation and renewable energy

supportiveness.• Importing country policy proxies.• Fixed effect dummies and error component.

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II. Empirical Model and Estimation Method

Backup

Table of Content

I. Literature on Environmental Regulation and Trade

III. Data and Descriptive Statistics

IV. Estimation Results

V. Conclusion

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Data and Descriptive Statistics

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H1: Stringent environmental regulation and renewable energy policy frameworks explain high exports of solar energy technologies.

Sources: IEA(2010), EIA (2011)

Figure 3: Public R&D expenditure for solar energy in US $ per capita for selected OECD countries 1996 -2007

Figure 2: Share of solar electricity generation from total electricity generation for selected OECD countries 1996 - 2007Output oriented measures:

Broad Environmental Regulation Index •Based on energy intensity and change in energy intensity.

•van Beers & van den Bergh (1997)

Solar electricity share (+)•Proxy of demand and policy stringency.

Input oriented measures:

Per capita public R&D budget solar energy (+)•Policy stringency variable (Johnstone 2010).

Policy of renewable energy policies•Incentive tariffs, quotas, tax measures, voluntary agreements, tradable certificates.

•Dummy for introduction.•Duration of policy.

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Output oriented measures:

Broad Environmental Regulation Index (+)Non-hydro renewable electricity share (+)•Proxy of demand and policy supportiveness.

Other Variables:Effectivly applied tariffs on imports (-)•Proxy of trade costs.

Data and Descriptive Statistics

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H2: A regulatory environment supportive of renewable energies increases imports of solar energy technology goods

Sources: UNCTAD TRAINS (2010), EIA (2011)

Figure 9: Global non-hydro renewable net electricity generation as share of total electricity generation 1996 - 2008

Figure 10: Development of OECD solar energy exports and respective mean tariff applied by importing countries.

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Estimation Results

General trade parameter

(except GDP)

Renewable energy support

H 1

Policy Framework

H 2

( )

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Findings & Conclusion

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• Highly dynamic market dominated by few counties.

• Strict environmental regulation has not impact on export performance.• BUT: Countries with a strong renewable energy policies framwork export

more solar energy technology components.• AND: countries that have introduced RE support policies early are

exporting more. Evidence on the Porter Hypothesis!

• Policy framework and market size in importing countries decisive to determine export markets.

• Stong environmental regulation decreases imports (general measure).• BUT: Strong demand for renewable energies increases imports.

Market size matters and Policy does matter!

• Trade cost do not matter (depending on fixed effects).

Open Questions:• Respecting dynamics.• Identifying the role of innovation.

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Thank You!

Questions?Comments & Suggestions!

14……..Backup

Contact:Felix GrobaDIW Berlin Mail:Mail: Fgroba@diw.deTel: +49 30 89189681

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Questions to deal with

(1) Fixed effects problematic(2) Dependent Variable (what to estimate)

(3) Zero inflation of dependent variable • zero trade flows present especially in the early years of the analysis (27.8%)• How to implement in STATA (zip depvar [indepvars] [if] [in], ...)

– FE? and panel structure or cross section?– Necessary?

(4) Including other Policy control variables (Graph next slide)• Policies introduced to foster RE expansion on national level

– BUT: may have and impact on trade performance– Question: do I need to control for it or is it included in other controls already?

• If yes: – Not the existence of the policy but the duration since implementation might is

of interest

0 1 2 3 3ln ln ln ln ln lnijt jit it jt it jt ij t ijtX X ß ß Y ß Y ß R ß R d d

0 1 2 3 3ln ln ln ln ln lnijt it jt it jt ij t ijtX ß ß Y ß Y ß R ß R d d

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Backup 1 - Data basis global market analysis• Databasis:

– UN COMTRADE Databank. 6-digit 1996 HS Codes– Literature Review identifying PV, Solar Termal, Wind Technology

Components• Problems: Dual use, data inflation• BUT: Best Proxy for cross time and cross country analysis

Explaination

Instatantaneous gas water heatersOther instantaneous or storage water heaters, non-electricSteam or other vapour generating boilers - Other vapour generating boilers, including hybrid boilersHeat exchange units [Heat-exchange units for solar-thermal or geothermal applications.]

Concentrator systems to intensify solar power in solar energy systems, other optical elements

Static converters [Inverters for converting DC to AC power] - change solar energy into electricityOther lead-acid accumulators [solar batteries], i .e batteries for energy storage in off-grid photovoltaic Photosensitive semiconductor devices, incl. photovoltaic cells whether or not assembled in modules or made up into panels; l ight emitting diodes

Wind Turbine TowersOther Steam engines, windmill, without pumpsParts for Steam engines and windmillsPumps for l iquids, whether or not fitted with a measuring device, other pumpsGenerating sets, electric, wind-poweredOther generating setsElectric generating set and rotary converters - combining electric generator and either hydraulic turbine or sterling engine

8413.818502.31

8502.39 (ex)8502.40

8412.80(ex)8412.90(ex)

7308.20 Wind Energy

8504.40 (ex)8507.20 (ex)8541.40 (ex)

Solar Photovoltaik

8419.198402.19 (ex)8419.50 (ex)

9002.90

Table 1: Nomenclature of selected renewable energy technologies, HS 1996HS Code

8419.11 Solar Thermal

Source: OECD/Eurostat [1999], Steenblik [2005a], Steenblick [2005b], Steenblick [2006], UNCTAD [2005], IPCC [2007]

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Global Market Analysis – Country Specifics

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ij

/RXA 100ln

/

ij iji

ij ijj ij

X X

X X

(1) (2) ij

/RCA 100ln

/

ij iji

ij iji

X X

M M

X = ExportsM = Importsi = Product Groupj = Country Index

Results:• Germany is specialized in exporting but does not enjoy a comparative

advantage because off high sector imports• China and India are increasing their market shares and also gain on

specialization and competitive advantage

I. MotivationII. Market Analysis

i. Literaturii. Variables

III. Panel

iii. Methodiii. Results

Country Share of Global Export* Export Specialization* (1) Comparative Advantage*(1)

1997 2003 2008 1997 2003 2008 1997 2003 2008

China 6.4% 13.6% 28.5% 45 69 97 70 23 83

Germany 14.1% 13.2% 16.4% 21 12 39 17 -9 -9

Japan 15.1% 17.5% 9.9% 47 87 52 42 50 82

United States 15.2% 9.2% 6.3% 5 -10 -34 -38 -13 -13

Italy 4.7% 3.8% 3.2% -12 -21 -25 14 13 -22

France 5.7% 4.2% 3.0% -10 -29 -39 0 12 5

Korea, Rep. 2.3% 2.2% 2.9% -29 -30 -11 -31 -90 -43

United Kingdom 6.4% 4.5% 2.8% 3 -7 -21 -1 36 44

Sum: 69.9% 68.2% 73.0%Sum OECD 83.6% 73.2% 61.0%

RXA > 0: export specialization, market share of global technology export larger than averageRCA > 0: RCA = RXA-RMA comparative Advantage, non-additive and without weighing for the size of product groups * only for solar PV and solar thermal energy technology (1) Compared to Industrial goods WTO definition

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Empirical Model and Estimation Method (2)

Country pair fixed effects

• explaining bilateral trade• controlling for the resistance to trade of a specific country pair

Exporter and importer country fixed effects

• explaining exports of i independent of specific trade partners• controlling for the resistance to trade of i and j separately• De facto: Random effects model• Computing power problematic

0 1 2 3ln ln ln ln lnijt it jt ij i j t ijtX ß ß Y ß Y ß D d d

0 1 2 3ln ln ln ln lnijt it jt ij i j t ijtX ß ß Y ß Y ß D d d d

Potential effects:- Country specific time invariant - country specific time variant- Country pair specific time invariant - country specific time variant

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• Innovations are relevant for trade [Krugman 1979]

• Patents as indicator of innovation output• Very dynamic innovative activity in

renewable energies

Data and Descriptive Statistics

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H1b: Countries that are more innovative on renewable energies export more solar energy technologies

Sources: OECD(2010)

Figure 7: Country share in RE OECD patent applications 1990 - 2007

Figure 5: Innovative activity in total patent applications and renewable energy patent application in OECD countries 1980 – 2007 (1996 = 100)

it

it

iti

total patentsShareTotPat

total patents

Country share in total OECD patent applications (+)

Country share in total OECD renewable energy patent applications (+)

it

it

iti

renewable energy patentsShareREPat

renewable energy patents

Problem: •Data not solar energy technology specific

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Figure 4: Introduction of Renewable Energy Policies by country 1978 - 2010

US UK SEPT

NONL

KRIT

IEGR

FRES DK

DE

CH

CA

BEAT

US UKSE

PT

NO

NLKR

JPIT GR

FRFI

ES

DK

DE

CH

CA

BE

AUAT

UKSENO

NL

KR JPITIE

GRFR

FI

ESDKDE

CH

BE

AU

AT

US

UKSEPT

NONL

KR

IT

IE GR

FR FIES

DK DE

CABE

AT

UKSENO

NLKRJP

IT

FI

DK

BE

AU

AT

US PT JPITDECH CAAU

1980 1985 1995 2000 2005 20101990

Incentive Tariffs

Investment Incentives

Obligations

Tax Measures

Tradable Certificates

Voluntary Programmes

Note: AT=Austria, AU=Australia, BE=Belgium, CA=Canada, CH=Switzerland, DE=Germany, DK=Denmark, ES=Spain, FI=Finland, FR=France, UK=United Kingdom, GR=Greece, IE=Ireland, IT=Italy, JP=Japan, KR=Republic of Korea, NL=Netherlands, NO=Norway, PT=Portugal, SE=Sweden, US=United States, Source: IEA (2004), authors extension

Backup 2 - Introduction of renewable energy policies