Election politics, solar, domestic jobs are all hot topics whether because of radiation or large amounts of cash and hot air. On September 17th, Obama announced he would file suit with the World Trade Organization against China for unfairly subsidizing auto and auto parts exports to the US. (1) This is reminiscent of the trade case American solar panel makers filed with the Commerce Department in October 2011. There were fewer election politics then, but it clearly reflects the same sentiment as Obama’s announcement today. Since I understand the solar business far better than the auto business, I will take this opportunity to round out some thoughts on the US solar tariff against China.
- Renewables and auto manufacturing have taken similar tactics of protecting and promoting domestic manufacturing. A significant part of the draw for a new ‘green’ energy industry in the current administration, as evidenced by the headlines in most renewable lobbying efforts. When I participated in industry meetings in DC in 2009 and 2010, this was the familiar tune for both renewable and coal groups (AWEA and “Generators for Affordable Power”, a merchant coal advocacy group).
- Interestingly, the large breakthrough in solar installations globally, and particularly in the US (since we lagged behind Europe on Feed-in-Tariff type policies), stemmed from China’s large-scale entry into panel and silicon manufacturing and the ensuing drop in prices.
- The effect of Obama’s anti-dumping move in solar is likely to be a substantial increase in the price of solar panels in the US. On May 17th, the US Commerce department announced the antidumping tariffs of over 31% on solar panels from China. (2) How will this impact price points for solar? And how sensitive is the US market to that potential increase?
- Most importantly, will the anti-dumping move have its intended effect of promoting domestic jobs in solar? It’s possible these policies could simply accelerate Chinese companies setting up solar manufacturing in the US. History shows this will create blue collar jobs in the US, but feed our domestic demand for panels off of well-paid foreign engineers and management, rather than creating those highly-desirable jobs on domestically. (3)
- How else could the US spur the domestic solar manufacturing industry, become more competitive with China, and create additional jobs? Perhaps we could extend tax credits for manufacturing. The 2009 recovery act (ARRA) included a tax credit capped at $2.3 billion in total tax expenditures for advanced energy manufacturing projects (Section 48C). Over 500 applications were submitted, totaling over $8 billion and oversubscribing the program by more than 3 to 1. Currently, no federal incentives are available to companies trying to build manufacturing facilities in the US, although these may exist on a state level. (4)
- China has successfully used EXIM financing: “Chinese state-owned banks have extended nearly $41 billion in loans and lines of credit to the country’s solar panel manufacturers, according to the trade case against them.”(3) Could the US do the same? How much cheaper is EXIM debt than US private debt? Are there existing public, subsidized, cheaper sources of debt available, such as those provided by loan guarantees from the DOE? How does the delta in debt costs compare to other key inputs that make the Chinese panels so much cheaper? Labor? Cheaper materials ? Lower taxes? Other?
- One frequent complaint about Chinese business is that they it doesn’t adhere to intellectual properties laws. Is this a significant part of why they have been successful in solar manufacturing? Would it be useful to the solar industry to improve enforcement at this point?
Overall, I believe in using green initiatives to spur economic development as well as sustainability in the US. Energy production has always been inextricably tied with economic development, and it would be ideal to design the green revolution with that in mind – particularly in the increasingly globalized and free-trade world.
So – What types of jobs do we ultimately want to encourage in the US economy? High-paying jobs that offer upward mobility in growing business areas. There were nearly 100,000 jobs in solar in 2011, half of which were in installation, and a quarter of which were in manufacturing. (2) How do we create a solar GM? Protectionist, cost-increasing policies are likely a net-negative, and we should focus instead on encouraging of domestic innovation and improving finance parameters for domestic manufacturing facilities.