International trade is raining on solar's parade. Tariff wars between China, the U.S., and other countries have kept renewable energy costs artificially high, stunting green global growth. But with a new international agreement on the table, the sun could soon come out for solar trade. Let's take a look at the problem, the solution, and the future impact on worldwide renewable energy.
When it comes to renewable energy, everyone's trying to go green to make green. Renewable energy is a rapidly growing field, and countries are willing to subsidize and support to make sure their domestic industries grab the biggest slice of the renewable energy pie.
Nowhere is this more true than with China-U.S. solar trade. Things first heated up in October 2011, when U.S.-based SolarWorld filed an "anti-dumping and countervailing duty petition" on $4 billion worth of Chinese solar cells. Essentially, SolarWorld accused China of subsidizing its solar production and "dumping" cheap supply in U.S. markets -- a death knell for any U.S. solar producer -- and demanded an import tax to keep prices comparable.
The petition was the spark that started a much larger fire, and the two countries have been waging bureaucratic war ever since. China fought back with its own $2 billion petition targeting U.S. polysilicon, a key ingredient in solar cells, eventually levying a prohibitive 57% tax on poor polysilicon.
The U.S. Commerce Department is now investigating four separate Chinese solar components, and they're likely to find China at fault for every single one. And just this past week, China promised to knock off the sole remaining loophole allowing Chinese companies to import U.S., E.U., and South Korean polysilicon. It's a solar stalemate.
With tit-for-tat trade wars going nowhere, solar trade proponents are taking their talk elsewhere. In an unprecedented push to support solar and renewable energy trade, most of the largest countries in the world are currently in talks to create a free trade agreement on environmental goods and services.
The agreement follows in the footsteps of a similar Asia-Pacific arrangement enacted last year, but this latest round of negotiations promises bigger and better things.
First, the group of 14 countries or unions includes China, the U.S., and the E.U., a "who's who" list of renewable energy production and trade. Second, this latest agreement is intended to expand the previous agreements' 54 covered environmental goods to 411 identified by the World Trade Organization (WTO). That's an important step to ensure that countries don't just cherry-pick components on a country-by-country basis (e.g. grabbing cells from South Korea and modules from Malaysia).
Unfortunately, the solar war isn't over yet. Despite the expanded reach of this latest round of talks, there's still an economic elephant in the negotiation room. Ferdi, an international development research group, points out that countries are still refusing to put their competitive cards on the table.
Of the current list of environmental goods, the average current tariff weighs in at a paltry 1.8% -- hardly the 57% polysilicon tax that's keeping America's product out of China. And even if everyone agrees to expand the current list to the 411 WTO-flagged items, the result would still be something comparable to a 3.4% tax, just half the tax of non-flagged environmental goods.
The Brookings Institution, an independent research group, stresses that this agreement must also extend beyond taxes. "Non-tariff barriers" are the bread-and-butter of the U.S.-China solar trade war. Anti-dumping measures, countervailing duties, price limits, and export subsidies are all non-tariff barriers, and none are included in current talks.
No solar settlement yet
Unfortunately, multilateral trade agreements are often whittled down to their lowest common denominator. With global environmental goods trade valued at $1 trillion, it's depressingly simple to see how easily vested interests can derail any free trade deal. But these latest talks are good, and they do bring the U.S. and China a small step closer to a solar settlement. With renewable energy costs continuing to decline worldwide, global trade can and will play an increasingly important role in the quest for a cleaner tomorrow -- tariffs or not.