Solar shutdown: China, the United States, and Rising Trade Barriers

By Jacob Cosman - 09 October 2012

This week, the US Department of Commerce will announce its final decision on the level of tariffs on the imports of Chinese photovoltaic cells. What do these trade barriers mean for the future of the solar energy industry?

Earlier this year, the Commerce Department imposed preliminary duties, citing a concern that the Chinese government was extending credit to producers in exchange for producing at a low cost in order to flood the market. These duties are nontrivial –  approximately 31% on sixty large Chinese firms and on the order of 250% for all other Chinese manufacturers.  As the United States accounts for 20% of the market for large Chinese solar manufacturers, these sanctions have had substantial impact on the state of the industry in China. The US International Trade Commission will make a final approval of the duties in November. (Last year the same commission unanimously voted in favour of allowing the preliminary tariffs.)

These tariffs will likely prompt the Chinese government to retaliate. In July the government announced its intention to “investigate” the impact of solar-grade polysilicon imports from the US and South Korea on local firms, which is a likely precursor to tariffs. Both the US and South Korea have large polysilicon manufacturers who would be significantly impacted by this retaliation.

Moreover, in the US, higher costs for imported Chinese photovoltaic cells are particularly difficult for small firms and firms engaged in downstream activities like installation, as they have less access to credit and less ability to change their supply chains. This has led to vocal opposition to further tariffs from US solar installers and several US solar manufacturers. The current tariffs have raised costs faced by these firms substantially:

Marco Mangelsdorf, a solar contractor from Hilo, Hawaii, told a hearing of the U.S. International Trade Commission on October 3 that he had received a notice from U.S. Customs and Border Protection requesting payment of $138,000 in additional duties on $54,000 of imported solar equipment purchased before the preliminary tariffs were imposed.

In a rapidly developing industry like solar power, allowing firms with new technology to enter the market is essential in providing incentives for investing in research. If it becomes prohibitively expensive to purchase supplies to start production, then there is very little appeal to investing in innovation for potential market entrants. Therefore, raising costs for new firms like this could substantially slow the improvement of commercially available technology in the US.

In light of the likely retaliatory tariffs and the negative effects on the broader solar industry, what could motivate further trade protection for existing big solar manufacturers? 

Some part of the motivation for this policy could be concern for the manufacturers the US federal government has supported with loan guarantees. For example, the government has extended $197 million in loan guarantees to SoloPower, which uses a similar copper indium galllium selenide technology to the defunct Solyndra (a beneficiary of similar government loan guarantees). Given the upcoming US elections and the broad coverage of last year's Solyndra bankruptcy, the US government has a strong incentive to provide every possible signal of a supportive policy environment for the companies it has backed.

Overall, gains from this policy would seem to accrue with those US producers who are already large and well-funded. If the government is confident that these firms have the best access to energy-efficient and cost-effective technology, then this could conceivably make some sense. However, if that's not the case, then this situation looks much more like regulators moving to protect a few dominant firms at the expense of consumers and other producers.

(Photo: Construction crews install photovoltaic panels at the Rocky Mountain Arsenal National Wildlife Refuge in Colorado. From the USFWS Mountain Prairie flickr photostream. Licensed via Creative Commons.)

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