By Victor Kitange, Economic Adviser, Oceans and Natural Resources, Lead – Commonwealth Sustainable energy Transition Agenda & Chilenye Nwapi, Legal Adviser, Oceans and Natural Resources.
Towards a local content development framework
Current global calls to accelerate the energy transition at pace and scale will fail without strong participation of domestic businesses and domestic workforce. A properly designed and implemented local content development framework will be crucial, and its design should be informed by industrial survey data and a gap analysis of existing skills and capabilities. It should provide for a supply and demand database on the availability of domestic goods and services, allowing for easy access by buyers and suppliers, and rules to facilitate domestic capacity development to enable domestic suppliers to reach world class standards. While the details of such a local content framework have not been discussed here, it is worth highlighting some of its critical features and noting that all these features need to be set out in a policy document and established in legislation.
Transparency and information access to enable economic opportunities across sectors
The local content framework should establish a credible market information exchange system on domestic supplies and procurement opportunities in the energy industry. Its prerequisite is completion of an industrial survey of domestic capabilities and energy industry needs. Economic opportunities for domestically sourced supplies that could be created by the energy transition include supply of goods and services, finance, manufacturing, installation services, legal services, and many more. Transparency and easy access to information by all actors on the availability of domestic supplies and procurement opportunities in the energy value chain are therefore critical.
Furthermore, the local content framework should provide for flexible rules on local content target setting supported by credible data from the market exchange information system. It is essential that available domestic supplies that meet the procurement requirements of the buyers of goods and services have a fair opportunity for success in the marketplace.
Funding to support local content development
An essential feature of the local content framework is a funding scheme to support local content development including capacity development for domestic suppliers and government oversight institutions. It should also include funding for credit support to domestic businesses. Building domestic capabilities to meet the needs of the energy industry is critical not only as way to increase domestic participation but also to fast track the energy transition.
Local content policy and legislation.
Also, the institutions that have oversight on the operational rules under the local content framework are a key feature of the local content framework. They must be set out in local content policy and legislation. It is important that such institutions, which may typically include responsible Minister, the Regulator, and a multi-stakeholder advisory body (comprising state and non-state actors), have their roles and responsibilities clearly spelled out in legislation.
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fiscal incentives for rapid growth in renewable projects
As a tax policy instrument, fiscal incentives are a critical tool that countries can use to encourage utilisation of domestically available resources including participation of domestic suppliers in the deployment of and investment in clean energy technologies. If well designed and targeted, fiscal incentives can be an efficient and effective mechanism to steer local content development. In the US, the introduction of the US Inflation Reduction Act of 2022, has been hailed for the recent rapid growth in US manufacturing and domestic supplies in the US renewable energy industry. This legislation provides for tax credits (advanced manufacturing production credits) for US-made renewable equipment and tax credits to developers of US renewable projects for purchase of domestically produced equipment that meet domestic content requirement thresholds.
A progressive and sustainable transformation of the energy system
Taking full advantage of economic opportunities from the transformation of the energy system requires building capabilities of domestic suppliers to world class standards, which is a long-term process. It is critical that the local content framework include a local content strategy, setting out a roadmap with measurable indicators for a progressive and sustainable long-term local content development.
Equitable opportunity to participate in the energy transition
Within the broad context of energy justice, local content plays an important role in ensuring that all stakeholders are afforded an equitable opportunity to participate in the energy transition. This can be achieved through the provisions in local content legislation as well as renewable energy contracts that encourage employment of domestic workforce, and the procurement of domestic supplies of goods and services, and include considerations for gender, youth, minorities, and historically marginalised groups.
To facilitate in-country value addition and national participation in energy value chain activities, recent efforts by the Commonwealth Secretariat have focused on helping Commonwealth member country governments to establish and operationalise local content frameworks. One of the most recent examples is the implementation of “Energy Local Content Development” reforms in the emerging energy industry in Barbados, a country which seeks to accelerate the energy transition to achieve 100% renewable energy and carbon neutral goals by 2030 and which has seen one of the most rapid uptakes of solar PV systems in recent years in the Commonwealth. The new local content development framework for Barbados is anchored on modern Energy Local Content Policy, Energy Local Content Act, Energy Local Content Regulations, a market information exchange system, and a Strategy including key performance indicators to operationalise local content development in the country.
Local content frameworks are key to accelerating the energy transition
In conclusion, economic opportunities associated with the energy transition can contribute to generating decent incomes, new employment, and overall welfare improvement. However, countries that do not have appropriate local content frameworks may not be able to take full advantage of such opportunities for its people. With the participation of domestic suppliers and domestic workforce being critical to accelerating the energy transition, such countries may also find it harder to meet the global call to ramp up the deployment of clean energy technologies crucial for tackling global warming.
Read part one
Steering the energy transition to foster domestic economic transformation
