The White House recently announced a new tariff and quota regime that attaches a 30 percent tariff to solar cells and modules that declines over time. The decision, which is expected to increase the price of electricity from new United States solar projects, has spurred a lively debate in the U.S. around whether these trade barriers are good or bad for businesses and workers, and to what extent cost increases will soften solar demand in the U.S.
On the other side of the globe, meanwhile, there is a similar debate roiling around the treatment of solar panels and related equipment in trade policy. In the U.S., shifting tariff policy will drive changes in the sources of power generation. But for energy consumers across sub-Saharan Africa, the stakes are much higher. The debate over import tariffs there may decide whether millions of people will be able to gain access to electricity at all.
See more related topics:
For millions of low-income households and communities located far from the reach of the grid, distributed solar systems have come to represent the cheapest and most reliable option for gaining electricity access and all the opportunities that come with it. Technology improvements, mobile money platforms, and credit financing have led to explosive growth in these distributed solar systems. It is estimated that 130 million off-grid products have been sold since 2010, impacting 360 million people. Yet taxes on imported equipment approach 40 percent of retail prices in some markets, putting the price of these systems out of reach for large segments of society.
With all the focus and resources pouring into the energy access challenge, the best option for countless low-income rural Africans remains an unsubsidized, highly-taxed distributed solar solution. That’s a problem.
There is heightened sensitivity around border taxes for many African governments, which is understandable. Unlike the U.S. and United Kingdom, where these taxes make up less than 1 percent of total government revenues, many African governments have few options for revenue generation and would be unable to provide basic government services without border receipts. In addition, much like the current U.S. administration, there is often a clear government interest in protecting local solar producers in the hope that a domestic manufacturing industry may take hold. The promise of revenue and local manufacturing jobs is alluring in a booming industry like solar energy. The downside? In almost all countries struggling with energy access, there is still little to no manufacturing of the solar panels, LED bulbs, or the super efficient appliances included with these systems.
Access to energy is a fundamental pillar of development and something that governments — and the donors backing them — have rightly prioritized. Yet the understanding of how import taxes interact with energy access, rural economic development, and government revenue generation is poorly understood. For example, more distributed solar systems in a market should mean fewer people relying on burning kerosene, a fuel with huge costs to both human health and the government balance sheets that subsidize it. Access to energy can provide opportunities for increased household income and employment which, in turn, drives government revenue from spending and the creation of local businesses. The growth of mobile money-enabled home solar platforms means extra tax revenue from financial transactions.
A better understanding of these dynamics is needed to optimize policy decisions, more efficiently allocate donor resources, and scale off-grid energy solutions. Governments in sub-Saharan Africa have made ambitious commitments to increase electricity access and some — such as Kenya and others in East Africa — are meeting this goal with remarkable success. They’re delivering increasing electrification rates, attracting significant investment, and becoming genuine engines of innovation. For the East African community, a clear-eyed look at tariff policies is their next opportunity to continue leadership on off-grid electrification. The stakes couldn’t be higher for the region’s rural populations or the rest of the planet’s 1.1 billion people struggling with energy poverty.