Trade war on solar or mutually beneficial co-operation?

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Trade war on solar or mutually beneficial co-operation?

2015-10-26

By Dale Jiajun Wen    2013, June


EU commission’s recent decision to install a punitive tariff on Chinese solar panels is endangering the credibility of climate agenda on both sides of the world. Some Chinese climate skeptics feel vindicated, “See, I told you so. The climate thing is just the west`s excuse to constrain China and to sell their very expensive green technologies. As soon as we make it cheaper, they are punishing us for it.” When the US initiated the solar trade dispute against China, it could be explained away as an excuse and sour grape of a climate laggard. And we see the consequences already. Projection of build-up of domestic solar panel sales in US is now forecasted by Bloomberg New Energy Finance to be lower than one year ago. When EU, the self-proclaimed climate leader among the developed countries, followed suite, the matter went from bad to worse.


The tariff is not even good for European jobs, the alleged goal of the measure. About 70% of all jobs in the solar supply chain are not in the panel manufacturing stage. Prognos, an international economic consultancy, has concluded that up to 242,000 net jobs are at stake with a 60% import duty. These jobs are in three fields: 1) the raw materials industry that delivers to China; 2) high end equipment and R&D jobs; and 3) the re-sellers and installers of solar systems. This is much needed green employment in the European Union in times of crisis. For comparison, the jobs at stake by the companies behind the trade complaint to the EU amount to less than 9,000 according to Solar Trade Association (STA). Therefore, the development of solar industry overall has been mutually beneficial for both EU and China across the whole supply chain and – in deed – thanks to Chinese tax payers who finance cheaper panels for European customers. Not to forget, for Chinese customers, too. The perceived ‘cure’ to the problem is thus much worse than the problem itself – in case we would agree that the problem is the formal violation of WTO rules.  


The solar panel producers are experiencing difficult times in the US, EU or China. Suntech, China’s biggest solar panel producer, announced bankruptcy in March,2013. One big reason for the global solar slump and we see similar phenomena in the wind industry, is the huge overcapacity of clean energy products, which is also caused by economies of scale and large manufacturing cost declines in last years. In other words, would the world have moved faster to clean power, the absurd crisis of a sector with double digit growth rates in last years would not have occurred. One can also say that the primary underlying cause is the lack of mitigation ambition. At least China has learned from that and is aiming at 34 GW domestic solar power by 2015 – from virtually none two years back. The looming trade war ignores this core issue. Recent reports suggest solar has already reached "grid parity" (cheaper than retail power prices) in over 100 countries. We need a better global coordination to further this breakthrough.


To give credit to the EU, 18 member states and many industries in solar supply chain have expressed their opposition to the commission’s decision. It is time for EU commission to listen to its member states and the wider industry sector. There is urgent need to make renewables more affordable and scale up the market in a mutually beneficial way. This is much more reasonable than entering a trade war with one of the largest renewable energy producers in the world particularly in times when worldwide fossil fuel subsidies of about $US 1.9 trillion (IMF) dwarf the alleged subsidies for Chinese solar makers by factor 100. It’s time to get the focus back to the real priorities for those dealing with the WTO in EU and elsewhere.    

 

The author is a visiting fellow of the Chongyang Institute for Financial Studies, Renmin University of China.