Author Judy Chao
Updated December 09, 2023

Solar energy has always been regarded as a crucial driver towards a low carbon footprint. However, renewable energy can still produce a significant amount of carbon dioxide during the construction process, leading to the development of low-carbon solar modules. Amid the net-zero trend, the EU has launched the Carbon Border Adjustment Mechanism (CBAM) and extended the EU Emissions Trading System (EU ETS) to cover emissions from the maritime industry, while the U.S. has enacted the Clean Competition Act (CCA). Although these policies do not directly regulate the solar industry at present, they are deemed imperative in the long run. In response, many solar manufacturers may have initiated plans for transformation or expanded their operations overseas. This article will provide an analysis of the solar industry's strategy of expanding operations overseas.

Impact of maritime carbon costs on solar industry

Why is the inclusion of the maritime industry in carbon trading important? This is because the implementation covers two major items:

  1. Carbon surcharge for containers: According to calculations by various shipping companies, the rates for carbon surcharges vary significantly. For example, Maersk estimates EUR 50 to 70 per 40-foot container for the Far East to Europe route.
  2. Carbon fee for shipments: For each tonne of CO2 emitted by container ships, a carbon allowance must be surrendered to the EU, with the current price being EUR 80 per tonne.

It is conceivable that these costs will be passed on to downstream manufacturers and incorporated into freight rates, thereby raising overall production costs. Therefore, the carbon cost of maritime transportation is a matter of concern for the solar industry, and it may even be one of the reasons why solar manufacturers consider building factories overseas. Based on the aforementioned carbon-related policies and the projected source of solar energy demand in 2024, the U.S., Germany, and Spain are used as examples for calculating the carbon cost of marine transportation. As illustrated in Figure 1 below, the results show that the surcharge for shipping a 40-foot container to the U.S. would be USD 2,183 in 2034, which is negligible in terms of the cost added per watt.

Figure 1. Shipping freight costs (calculated based on a 40-foot container)

Impact of CBAM and CCA on module costs

The impacts of CBAM and CCA are likely to be more significant than the pass-through of carbon costs from shipping. In terms of policy direction, these two policies are expected to have a direct impact on various products in the future, as carbon taxes raise the production costs. According to statistics on the carbon footprint of modules in different countries, 500 kilograms of carbon dioxide is generated by each kW, which will be used in the following calculation.

Figure 2 shows the potential increase in cost per watt (in cents) under the implementation of carbon tax. Factors that have been incorporated into this calculation include annually rising carbon prices (excluding free carbon allowances), the pass-through of carbon costs from marine transportation, tightening of policies, and module efficiency improvement. The results suggest that while the impact of CCA will be more significant before 2030, the additional cost per watt will not exceed five cents.

It is worth noting that CBAM is expected to have a notable impact from 2030, which aligns with the target year of many carbon-related goals, as well as the time for industry coverage expansion and carbon price increases, accompanied by a 26% reduction in the EU's free emissions allowances. This suggests a swift cost increase in module exports to the EU, with the carbon tax expected to contribute an additional USD 15 cents per watt in 2034, emphasizing that future module costs may primarily stem from carbon emissions rather than production itself.

Figure 2. Cost increase under carbon taxes

Enterprises may consider establishing manufacturing operations in the EU or the U.S. to avoid carbon tariffs, but it may not be a practical solution. Companies in these target countries are also likely to face regulations related to carbon emissions, trading, or taxes, making carbon costs unavoidable regardless of production sites. Therefore, the ultimate solution lies in carbon reduction in manufacturing processes (e.g., using renewable energy in the ingot pulling process) and in raw materials (e.g., using FBR granular silicon).

Challenges and future directions for businesses

Companies may not necessarily need to establish factories overseas due to carbon issues, as the overall benefits may not be significant. However, the development of low-carbon modules holds promising prospects. For example, South Korea's low-carbon modules, despite facing sales challenges due to a rapidly shrinking market and low demand, offer room for price negotiation. The South Korean government intends to adjust the structure of the carbon market, providing an opportunity to strengthen the competitive advantage of low-carbon modules. In addition to South Korea, countries like France and Italy have also offered competitive bidding advantages, environmental certification, and other related measures for solar modules. Manufacturers that succeed in carbon reduction may have the opportunity to become preferred procurement targets or secure more government projects. In the next three to five years, solar energy companies should focus on carbon reduction and pay attention to dynamics of overseas markets to gain a competitive advantage.

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