Is the US solar industry right to complain over Chinese subsidies?
Here is a poser: are anti-competitive practices really such a bad thing when it comes to clean tech, or are they a necessary evil if we are to rapidly accelerate the rollout of low carbon technologies?
The question was sparked by the latest in a series of gloriously ill-tempered spats between the US and China, which saw a group of US solar firms file an official complaint accusing the Chinese government of "predatory and illegal aggression" in its attempts to support its domestic solar firms.
The charge was categorically rejected by the Chinese Commerce Ministry through the immediate release of a subtly worded response urging the Obama administration to "scrupulously abide by its promise to oppose trade protectionism".
The eventual conclusion of the complaint will rest on whether or not obscure subsidy mechanisms breach Byzantine World Trade Organisation (WTO) rules, but the incident boils down to a good old-fashioned trade row.
US solar firms are furious that their margins are being eroded by a glut of low cost solar panels from China, which they blame for the closure of seven domestic manufacturing plants and regard as part of a dastardly plan to "gut" and "own" the US solar market.
They reckon Chinese manufacturers can produce solar panels at such low cost - and according to various estimates prices have fallen by around a third in the past year - only because they are the beneficiaries of numerous subsidies, tax breaks and other favourable policies that breach WTO rules.
The Chinese government's response is that the country has not breached any WTO rules, and that all countries, including the US, subsidise their solar industries to varying extents.
It also pointed out, and this is where it gets interesting, that, as a general rule, governments, businesses, policymakers and environmentalists the world over want to shift subsidies from fossil fuels to clean technologies as a primary means of accelerating investment in clean technologies, cutting carbon emissions and tackling climate change.
"The US has no reason to criticise other countries' efforts to improve the world's environment, and should instead strengthen co-operation with other countries in the solar energy sphere to jointly respond to climate and environmental challenges," the Chinese ministry said. Or to paraphrase: 'Just because you can't afford to properly subsidise your solar industry, don't complain about us subsidising ours.'
Trade rows always boil down to a question of perspective. The standard position can be summarised thus: 'Our subsidies are proactive and progressive policies essential to the effective operation of our economy. Yours are devious acts of aggression designed to give your firms an unfair advantage because they cannot compete on a level playing field.'
But add in the fact that those pushing clean energy subsidies can claim that their policies are designed to help save the planet, and you have all the ingredients necessary for a truly explosive row.
The key question is does the Chinese position stack up?
Its case is not without merit. Virtually all countries subsidise solar energy, including the US, and if we want to accelerate the rollout of renewable energy we need to make it as cheap as possible. The deep cuts in the cost of solar panels over recent years have allowed the industry to continue to grow at a breakneck pace, despite the ongoing global economic crisis.
And they have also allowed governments such as Germany's and the UK's to reduce solar energy subsidies, saving taxpayers and energy bill payers money at the same time as maintaining the rapid rollout of new solar technologies.
Yes, subsidies distort markets. But firstly, as the International Energy Agency has repeatedly pointed out, the renewables industry continues to enjoy a lower level of subsidy globally. And secondly, as solar technologies improve, the level of subsidy will fall in line with the resulting cost reductions.
If Western governments want to accelerate the rollout of renewables and deliver deep cuts in carbon emissions is it not slightly hypocritical for them to complain about Chinese government policies that could help them do just that?
And yet the tried and tested arguments against all forms of anti-competitive behaviour remain similarly compelling.
By offering hugely generous subsidies to solar firms China, and some other countries, are potentially offering a leg up to less efficient, low cost, commoditised designs that will never be able to deliver solar power at grid costs and will lock purchasers into less than impressive technologies for up to 25 years.
At the same time they are undermining the viability of those companies investing in the hugely expensive research and development necessary to produce highly efficient next-generation solar cells capable of slashing costs further. Why should a venture capital firm back the next big thing in solar technology if they fear it will simply lose out to cheap alternatives subsidised by a cash rich Chinese government?
The golden rule of column writing is to express a firm opinion and stick to it, but I have to admit this one has me stumped. When it comes to clean tech subsidies should we let countries simply get on with it as they see fit on the ground that the quicker we commercialise low carbon technologies the better? Or are excessive subsidies designed to give one country dominance over an emerging technology ultimately damaging to the wider low carbon economy?
If you have the answer please email it to the Chinese Commerce Ministry, the various solar trade associations of Europe and the US, and the World Trade Organisation.
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