Published on January 5th, 2012 | by Zachary Shahan2
On the China-Solar Trade Dispute
January 5th, 2012 by Zachary Shahan
If you’re in the solar industry, or care much about it, I’m sure you’ve heard of the “solar trade war”/solar industry trade dispute going on right now. Basically, a handful of solar manufacturing companies from the U.S. and Germany (led by SolarWorld) contend that china is dumping its solar goods in the U.S. and has submitted a petition to the U.S. International Trade Commission/Department of Commerce (ITC/DOC) (see Obama’s video statement on it here). Many U.S. solar industry players are not into the move by SolarWorld and friends, however. In the past, I shared the opposition argument to the petition from this group, as presented by Arno Harris of Recurrent Energy. Below, I’m going to share the perspective of both sides.
First is a letter from the President of the Coalition for Affordable Solar Energy (CASE), Jigar Shah, from just before Christmas. (CASE is the coalition opposing the trade petition.) Following that is a reply to that letter from Hari Chandra Polavarapu, Managing Director of Solar/Cleantech Research at AURIGA USA LLC., reposted from Greentech Media.
by Jigar Shah
December 20, 2011
Mr. Gordon Brinser
SolarWorld Industries America Inc.
25300 NW Evergreen Rd.
Hillsboro, OR, 97124
On behalf of the Coalition for Affordable Solar Energy (CASE), I am writing you to urge that SolarWorld withdraw its harmful petition to the International Trade Commission/Department of Commerce (ITC/DOC). The severe tariffs SolarWorld seeks would have a very damaging effect on the solar industry in the United States and would fundamentally undermine many years of effort by all of us who care about the future of solar power. In simple dollar terms, your petition threatens the planned installation of solar electric power systems in the amount of $11 billion in 2012 and the potential installation of $60 billion currently in the total pipeline.
I know you are well aware of the extraordinary growth we have seen in U.S. solar industry jobs and installations. This growth would not have been possible without the significant drop in the cost of solar cells and panels that we have witnessed over the last few years. In fact, between 2006 and 2011, solar module prices fell 40 percent while total demand increased eight-fold, from under 200 megawatts to 1,600 megawatts installed capacity.
Lowering the cost of solar cells and panels and increasing deployment has significant economic, security and financial benefits to the U.S. By asking government to interfere and artificially increase the price (equivalent to putting on a high tax) will only hinder the deployment, cost thousands of jobs, reduce our energy security and further negatively impact an already shaky economy. If your petition is successful and the U.S. Department of Commerce imposes massive duties on solar cells and panels imported from China, it will harm and reverse the progress solar power has made.
SolarWorld’s petition will do far more damage than good to the U.S. solar industry as a whole. CASE’s membership is representative of 97 percent or 98 percent of America’s solar industry, as the large majority of all U.S. solar industry jobs are downstream of solar panel manufacturing in project development, logistics, construction and installation. Every morning, thousands of hard-working Americans put on their tool belts and go build solar power plants. Our country needs more of those jobs, not fewer.
At a time when electricity generated by solar cells is becoming competitive with fossil fuel-generated electricity, it is completely counterproductive to engage in any effort to significantly raise solar cell prices. As you well know, every country seeking to expand its solar industry provides support to solar companies.
Global competition is healthy. Bringing down the price of solar cells and panels has been critical to expanding solar installations worldwide so we can reduce the use of polluting fossil fuels. Here in the U.S., the solar industry now employs more than 100,000 professionals, up from 93,000 last year. This represents an overall growth rate of 6.8 percent over the past year, nearly 10 times higher than the national average employment growth rate of 0.7 percent. We need to see this growth continue. Placing the equivalent of a tax on imported solar cells could significantly drive up all solar panel prices and therefore have a devastating impact on U.S. solar job growth.
And I am sure you are very well aware that the imposition of severe tariffs could ignite a solar trade war that would result in retaliatory tariffs against U.S. solar exports to China. In fact, the Chinese have begun just such an investigation. Last year alone, the U.S. had well over $1.5 billion in solar exports to China, with net exports to China of some $400 million. This could devastate the many American-owned companies exporting solar products to China and cause thousands more American jobs to be lost.
Further, China is now considering asking the WTO to investigate violations in U.S. clean energy policies, particularly in the states of Washington, California, New Jersey, Ohio, and Massachusetts. The investigation would presumably look into Oregon’s clean energy support policies, too. Moreover, China could ask the WTO to begin investigations of European clean energy support policies, including the domestic content preferences of the Italian feed-in tariff (FIT) or German support measures. It is critically important to maintain our solar policies around the world and not destabilize our global solar markets through inadvertently spiraling trade wars.
Please reconsider your petition, which can only result in unnecessary damage to our American solar industry and which is likely to precipitate a trade war that will further damage the solar industry and redound to the benefit of our fossil fuel competitors.
Coalition for Affordable Solar Energy
by Hari Chandra Polavarapu
We contend that Jigar Shah’s arguments center only on the solar industry’s downstream installation growth and the catalytic role of lower solar cell and module prices in making that a reality. Beyond that, he concentrates his arguments only on the negative effects of imposition of tariffs on Chinese solar PV product imports.
By focusing only on the positive effect of lower prices and the negative effect of tariffs, we believe Jigar Shah is being willfully blind and completely ignorant of the devastation and bankruptcies that have transpired in the global solar PV industry (U.S., Germany, India, and other places) because of the asymmetric competition and unfair trade practices that China has engendered.
China’s emergence as the pivotal hub of global solar PV manufacturing industry, while lowering the prices of solar cells and modules to the exclusion of everything else, has led to imbalances that nobody is happy about. It all centers on mispricing capital, tolerating capital inefficiency of excess capacity, and operating by ambiguous rules of engagement that are hammered home with plentiful capital, cheap labor and lower taxes. The lower prices of solar cells and modules from China have so far served as a battering ram in destroying overseas solar PV manufacturing competition. If the unfair and irrational practices that led to lower prices continue unhindered, how long will it be before the downstream solar PV value chain is also fully debilitated?
China’s state banks have set aside more than $43 billion in long-term solar funding via framework agreements that can be tapped by Chinese solar companies for downstream installation as well. Where will Jigar Shah go, and who will he complain to then?
Jigar Shah needs a compass on economics and trade. Here are five basic principles that can serve as a common-sense guide:
• Competition does not mean asymmetric warfare.
• Free trade does not mean trade that is free of rules.
• Globalization does not mean industry/sovereign nation enervation.
• Structural imbalances always collapse because they destroy capital efficiency.
• Predatory/subverted capitalism does not lead to capital formation, risk mitigation or price discovery.
Asking the U.S. government to investigate unfair competitive/trade practices is not calling for interference; rather, it is seeking a remedy against an unsustainable industry paradigm. Imposition of duties/tariffs may well come across as a tax in the near term, but trade-related acrimony between countries is largely a result of structural imbalances accumulated over time that need to be redressed. “Trade wars” rhetoric is primarily a negotiating tactic, more akin to putting talking points on record to effect positive change. We believe a better solution would be to drive domestic demand both in China and the U.S.
Instead of a full-scale trade war, we have previously suggested the enabling role of a sensible U.S. energy policy, and the positive steps that China can take in creating large-scale domestic demand.
It’s true that lower prices benefit all rate payers — but if that is all there is to an economic argument, then the U.S. and the rest of the world should give up all manufacturing to China and services to India. The underlying point is that these issues are complex and need a more refined and nuanced response from all parties concerned.