6 Ways that CPTPP Might Impact the Energy Sector

6 Ways that CPTPP Might Impact the Energy Sector

THIS ARTICLE WAS WRITTEN BY ENERGY WATCH | 24.04.18 | 12:11 PM

Global trade has endured a significant shift in recent years. The once great champions of free trade, the United States, are seeing an increasing swing towards protectionist policy, most notable with the axing of U.S. participation in the Trans-Pacific Partnership (TPP).

Yet as the U.S. retreats from global trade, Asia-Pacific is increasingly becoming the trailblazer in pioneering trade deals. As TPP was lost to a changing political climate in America, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership(CPTPP) has emerged in its wake.

The landmark CPTPP deal encompasses 11 countries still committed to the sentiments laid out by the original TPP. But as the deal makes its way through respective parliaments in search of approval, what could the agreement mean for the energy sector?


Sustainable model for the environment

Sustainable environments form a key part of the CPTPP agreement, with a committed intent by participant parties to ensure that trade is created without negative impact on the environment. CPTPP also follows the spirit of the original TPP deal, encouraging nations to work together to develop innovative solutions to the growing challenges of a more sustainable world.

When it comes to impact on the energy sector, these provisions are likely to provide an increased focus on the need for energy efficiency and reduced emissions. It also provides a positive framework for public-private partnership across signatory nations to develop innovative technologies and alternative energy sources that will support a more sustainable economic model.

Renewed focus on Renewable energy

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Renewable energy is a sector that could experience significant growth as a result of CPTPP. Renewed focus on efficient, low-carbon energy sources may provide a stimulus in investment and development throughout RE industries.

Reduced trade tariffs could further support value within the supply chain for renewables, decreasing the cost of importing key components of renewable technologies. This could help reduce both the capital investment and unit-cost of generation for a variety of renewable technologies, accelerating the cost-efficiency of adoption.


Support for infrastructure and energy technology

New trade policies under CPTPP are likely to have a significant positive impact on manufacturers. Alongside the potential for positive growth in renewable energy technology exports, this boost is also likely to impact electronics and energy products that play a big part in energy efficiency. Analysts Moody suggest that such impacts are likely to ensure that Malaysia will prove one of the biggest winners of the renegotiated CPTPP.

As the push for greater energy efficiency in buildings and appliances grows, demand for technologies such as high-quality air conditioning units or ultra-efficient LED lights will grow. This combination of efficiency focus and reduced cost of market access will unlock an expanding global market for these products.


Growing need for talent in a globalised world

Immigration legislation was a fiercely protected area of CPTPP, yet one which still offers potential benefits. A clause of CPTPP will support the Temporary Entry for Business Persons, allowing high-skilled workers temporary visas in accordance with local legislation. With the growth and acquisition of talent in the energy sector an increasingly acute problem, this temporary entrance opportunity could provide a flexible solution to enabling the sharing of key talent in certain areas of the industry.

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Labour rights more broadly were a contentious point of the original TPP in Malaysia, and continue to be divisive in the agreement’s newest iteration, particularly around some of those which have been suspended. While the wider set of policies may remain controversial, the ratification of CPTPP will require the energy industry to seriously assess its current labour standards to ensure they apply with legislation that is set to be amended.


Private- public partnerships – a contentious area?

One of the more controversial areas around the original TPP, and carried over to some degree in CPTPP, are the protections and liabilities around private investments into participant countries and potential dispute settlements between businesses and governments.  The depth of implementation of compulsory investor-state dispute settlements varies between participant countries, but the wider framework for dispute resolution should still create more confidence in investment.

While some criticise this area of the agreement, others praise a legislative framework that they argue will encourage foreign direct investment(FDI) between countries. Stronger investment support and settlement rights may well promote a deeper positive investor sentiment, stimulating greater FDI that could have a consequent impact on energy-sector investment.

State-owned-enterprises(SOEs), known as GLCs in Malaysia, are another area where investment policy has remained fraught. CPTPP aims to support competition by restraining some of the privileges enjoyed by SOEs in participating nations, which some parties are strongly opposed to. Negotiations such as those to exempt Petronas and Khazanah Nasional from the full impact of the original TPP show the sensitive nature of this element of CPTPP in many countries.


A catalyst for energy demand

CPTPP is an agreement which encompasses 11 countries with a combined GDP of US$10 trillion, or around 13.5% of global GDP. With nations such as Thailand expressing their own desire to participate in the future, the total value of the participant trade bloc is widely anticipated to expand.

With CPTPP expected to provide a catalyst for GDP growth throughout participant countries, energy demand is likely to increase as a consequence. Taking the case of Vietnam as an example, a modest productivity growth resulting from CPTPP is predicted to deliver around 3.5% growth in GDP.  While the link between GDP growth and energy demand is expected to reduce in coming years, stimulation to sectors such as the energy-intensive manufacturing industry, alongside wider economic growth, are likely to deliver an acceleration in energy demand growth.

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