- What do you think are the key legal challenges in ensuring energy security while advancing decarbonisation goals?
One of the most significant legal challenges in advancing decarbonisation, particularly through mechanisms such as carbon credits, is the potential conflict with established land rights and traditional land use. In the context of soil carbon credit projects in Northern Tanzania, for example, the rapid development of such schemes has raised serious concerns about land alienation, disruption of traditional livelihoods, and the undermining of communal land ownership.
- How do you think African countries ensure a just energy transition that protects vulnerable communities?
Legal frameworks often lag behind the pace of new decarbonisation initiatives, leaving communities vulnerable to loss of control over their land and resources. This is particularly acute for Indigenous and pastoralist communities, such as the Maasai, whose livelihoods depend on mobility and communal access to rangelands.
Stefanie Busch | Executive | Namibia
What legal best practices would you recommend for drafting and implementing effective local content requirements?
The effectiveness of local content requirements ("LCRs") imposed on the renewable energy sector, specifically in respect of LCRs for local procurement and manufacturing of renewable energy components, can be considered in light of the following factors:
- market size and stability,
- (ii) policy design and coherence,
- (iii) restrictiveness and
- (iv) existing industrial base.
Firstly, the market size for the prospective technology and equipment suppliers, as well as the stability of such market in the long term, will be a vital factor in encouraging investors to invest in local manufacturing operations and thus justifying local production over sourcing the same components from external suppliers and importing them. The size of the market can be determined by considering both the renewable energy resource of the country, as well as the demand for such resource, i.e. the electricity generation capacity and offtake requirements for the country or neighbouring countries. A sizeable market is required to ensure economies of scale in production, which allows for the production of renewable energy components at competitive prices. If the market is too small or if there are no strong political signals indicating that the growth of the renewable energy market is a political priority, technology suppliers may be discouraged from entering the local market, thus creating a barrier for LCRs to be met by domestic companies.
The second determinant for the effectiveness of a local content policy is how the policy is designed and the coherence of such a policy with complementary policy instruments. Clear definitions of the LCRs are essential to provide clarity and certainty to investors as to what is required of them at the point of entry into the market and beyond, as well as to avoid loopholes being taken advantage of to the detriment of the domestic industry, which is supposed to be developed. Additionally, to clearly define LCRs, local content policies should also be accompanied by transparent procedures for complying with LCRs, as well as procedures and measures to ensure the effective monitoring and enforcement of such requirements.
Thirdly, the restrictiveness associated by the levels of LCRs which are imposed by local content policies and renewable energy auction schemes - mostly in the form of minimum thresholds of a certain percentage of local content which is required to be met in order for a bid to be considered eligible - may discourage investors to submit a bid if these thresholds are too high, because such thresholds may make a project uneconomical. Conversely, if these thresholds are too low, the LCRs may not have any positive impact locally and merely serve to increase transaction costs and bureaucratic red tape. Most jurisdictions have accordingly adopted an approach characterised by a gradual increase of the minimum threshold.
The last determining factor is the existing industrial base in a particular country. The level of existing local technological and manufacturing capabilities and competencies will impact an investor's decision whether or not to set up its own manufacturing operations in the country or to source components directly from local manufacturers. A strong existing industrial base of local firms which operate close to the global market standards, in terms of quality, production capacity, economic efficiency and cost competitiveness, will encourage foreign investment, in contrast to non-existent or low-quality local manufacturers.
Accordingly, in designing local content requirements, it is essential that the practical realities of a particular country and industry are kept in mind, while also accounting for how such LCRs may impact the bottom line of investors and thereby their appetite to invest.
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