Free Trade and Clean Energy Go Together

COMMENTARY Energy Economics

Free Trade and Clean Energy Go Together

Aug 30th, 2021 2 min read
COMMENTARY BY
Anthony B. Kim

Research Manager and Editor of the Index of Economic Freedom

Anthony B. Kim researches international economic issues at The Heritage Foundation, with a focus on economic freedom and free trade.
Freer trade and advancing clean energy technology can go hand in hand, being mutually supportive. alvarez / Getty Images

Key Takeaways

Policies that promote open trade can support cost reductions, product development, and job creation.

Freer economies are cleaner and more environmentally friendly economies.

Free market principles that have proven to be the key to economic success also can ensure environmental success.

“Clean energy” has become a shorthand term for the broad policy debate on how to achieve environmentally safe economic growth and enhance America’s energy security.

joint study recently published by the World Trade Organization and the International Renewable Energy Agency looks at how policies that promote open trade can support cost reductions, product development, and job creation, particularly in the sector that produces solar photovoltaic technologies.

The report, titled “Trading into a bright energy future: The case for open, high-quality solar photovoltaic markets,” points out that “open global trade has been an important factor in the rapid deployment of solar photovoltaic technologies around the world.”

The report also emphasizes: “Keeping markets open is critically important to ensure that all countries can benefit from solar photovoltaic (PV) technologies,” while “tariff reduction initiatives should be complemented with efforts to address broader technological, economic, policy and regulatory barriers that hamper the deployment of solar PV.”

Indeed, around the globe, the free, transparent market system—reinforced by more open trade—has resulted in enhanced capacity for clean energy innovation. The positive link between economic freedom and higher levels of innovation ensures greater capacity to cope with environmental challenges.

As highlighted since 1995 by The Heritage Foundation’s annual Index of Economic Freedom, nations that embrace the rule of law, fiscal responsibility, regulatory efficiency, and market openness pave the way for pragmatic public and private policies and actions that improve environmental health and ecosystem vitality.

Simply put, freer economies are cleaner and more environmentally friendly economies.

The welcome outcome from this vital interaction between market openness and capacity-building is a virtuous cycle of investment, innovation, and more dynamic, inclusive economic growth. These economic facts of life apply to the clean-energy technology sector the same as they do to any other.

The energy sector also needs freer trade. In fact, freer trade and advancing clean energy technology can go hand in hand, being mutually supportive. Not so ambiguously, greater freedom to trade is key to “green” growth.

The World Trade Organization, a multinational body that “provides a framework of disciplines to facilitate global trade and serves as a forum to negotiate further trade openness,” notes that:

Trade openness can help efforts to mitigate and adapt to climate change, for example by promoting an efficient allocation of the world’s resources (including natural resources), raising standards of living (and hence the demand for better environmental quality) and improving access to environmental goods and services.

It’s good to keep in mind that advancing free trade is a key policy action for effectively facilitating a healthy environment. The pragmatic, lasting way to ensure a cleaner and more sustainable environment lies on the path of spreading and enhancing the freedom to trade, which leads to dynamic, competitive innovation.

More often than not, progressive policymakers and activists claim that capitalism is bad for the environment. Yet, far from being the problem, capitalism is actually the proven path to real, practical solutions. Free market principles that have proven to be the key to economic success also can ensure environmental success.

The world economy needs these principles now more than ever.

This piece originally appeared in The Daily Signal