A better classification of solar products can facilitate trade and help meet climate and energy targets
Solar energy is booming at the moment. Generating capacity from solar panels has increased by 50 percent per year since 2005. More recently, a wide variety of solar lights, lighting sets and solar home systems have been developed that provide affordable, off-grid electricity access for millions of people. International trade in solar products is now over US$25 billion per year, but the codes used to classify trade (the Harmonized System or HS) have not kept pace with these recent developments. To improve the situation, the International Renewable Energy Agency (IRENA) is proposing changes to the HS codes used for solar products and is seeking support for these changes from countries represented at the World Customs Organization (WCO).
Over the last decade, the production and use of renewable energy has increased substantially and solar energy has been at the forefront of this energy revolution. The benefits of renewable energy are now recognised in the 140 countries that have national renewable energy targets and, at the international level, in the Sustainable Development Goal (SDG) for energy. However, with the rapid increase in the use of solar energy, especially in off-grid applications, it is becoming increasingly difficult to measure progress towards meeting these targets.
Solar products and the Harmonized System
The Harmonized Commodity Description and Coding System is an internationally standardised system of codes and product descriptions used to classify traded products. It is used as a basis for setting tariffs and other trade-related measures and as a framework for the collection of international trade statistics. At present, most solar technologies are included as part of broader product groups within the HS and the descriptions do not reflect the variety of different solar products that are now available.
Solar cells account for most international trade in solar products, with total imports of at least US$25 billion in 2015. Solar cells may be traded as panels or modules or as cells that will be assembled into panels in countries. With only a handful of countries manufacturing solar cells, most countries import the cells or panels that they need. This trade is currently recorded as imports of photosensitive semiconductor devices (HS Code 854140), which also includes trade in LEDs and other devices.
Imports of solar water heaters amounted to at least US$163 million in 2015. This trade is recorded as part of a broader group of water heating products (HS Code 841919), where it accounts for at least 10 percent of all trade in the group and possibly much more.
Solar lights, lighting sets and solar home systems cover a range of solar-powered products that provide basic energy services. These products are becoming increasingly popular in countries where few people have access to on-grid electricity. Imports of these products are not easily measured, because they can be imported under many different codes. However, the information that is available suggests that imports were at least US$50 million in 2015. These figures are confirmed by recent market research from the Global Off-Grid Lighting Association (GOGLA), which shows that annual sales have increased from almost nothing five years ago to about 7 million units in 2015.
Proposed changes to the Harmonized System
To clarify trade in solar products, IRENA has proposed three main changes to the structure of HS codes. The first is to separate solar cells and solar water heaters from the broader product groups where they are currently placed. The second is to create two specific codes for solar lights and lighting sets, to reduce uncertainty about how these products should be classified. The third is to create three codes for photovoltaic generators, to separate trade in these products from trade in other generators and create a place in the classification for solar home systems. Changes to the product descriptions in the HS Explanatory Notes have also been proposed to describe more clearly the differences between solar panels and generators and the different types of solar lights, lighting sets and solar home systems.
The benefits of clearer product codes
Changes to the HS codes are expected to lead to two major benefits. The first is to facilitate trade by clarifying the codes that should be used when shipping products. This is particularly important for the more complex products, where manufacturers have reported a lot of variation in the codes used by countries. Greater clarity should also help the many countries that want to promote solar energy by lowering tariffs on these products.
The second benefit will come from improved trade statistics. Many countries find it difficult to measure off-grid electricity production and are underestimating solar energy production and electricity access. As many countries import all of these products, improved trade statistics will help them to monitor their progress towards meeting renewable energy targets and the SDG for energy.
The HS is revised every 5 years and the WCO has just started the next review cycle. This proposal will be presented at the next review meeting at the end of May 2017. If readers would support the changes outlined here, they could provide valuable assistance by contacting their delegates to the WCO and asking them to support this proposal when it is discussed. IRENA is also happy to provide a copy of the proposal and answer any questions that readers may have.
Adrian Whiteman is Chief Statistician at the International Renewable Energy Agency (IRENA), based in Abu Dhabi, UAE. IRENA is an intergovernmental organisation that supports countries in their transition to a sustainable energy future and serves as a global centre of excellence in renewable energy technology, policy, financing and knowledge. Renewable energy statistics are available from the IRENA resource portal.