Renewable Energy Trade Disputes – With the continued advancements in the development of renewable energy technologies and their ever-increasing cost competitiveness, there is more and more money at stake for countries and companies alike.
A number of countries have recently found themselves at odds with one another over the international impact of certain domestic financial support policies for promoting renewable.
Renewable Energy Trade Disputes
The United States, China, Japan, Canada, and the European Union, discussed here, along with many others, currently find themselves on varying sides of major international trade disputes on this topic.
High-end manufacturing of renewable energy technology components, and the money and jobs this brings with it, is becoming an increasingly important component for policy makers and an increasingly contentious issue at the international level.
The dispute between the United States and China over solar photovoltaic (PV) manufacturing is probably today’s most high profile renewable energy trade dispute.
The Chinese share of global solar PV manufacturing has grown at an incredibly fast pace since the country entered the market, as Chinese manufacturers have rapidly expanded from a 15 percent market share in 2006 to provide nearly half of the world’s total solar PV manufacturing output today.
As of 2008 China produced 2,500 megawatts (MW) of solar cells, up from just 4 MW a decade earlier, as reported in the Worldwatch-REEEP Renewable Energy and Energy Efficiency in China report.
With an existing installed capacity of 900 MW at the end of 2010, much of this production is being slated for export.
The so called “China price” of solar PV panels and cells manufactured in China is at the heart of the U.S.’ concern over this rapid growth.
The U.S. government and American domestic manufacturers contend that their Chinese counterparts unfairly subsidize large portions of the manufacturing and export business, allowing Chinese companies to produce and sell products at artificially low prices and dump them on the U.S. market.
U.S. manufacturers argue that the dumping margin on these imports is over 100 percent, meaning they are being sold in U.S. markets at roughly half, or less, of their true cost.
The Chinese government provided $30 billion to solar manufacturers last year, roughly 20 times more than the financial support provided by the U.S. government.
This is, of course, a challenge to U.S. manufacturers, as it is very difficult to keep their production cost-competitive with cheap Chinese imports.
In the meantime, the U.S. government is taking what it considers to be its own preventative action.
A long awaited U.S. Department of Commerce initial ruling on the issue was handed down this Tuesday.
In a move called for by U.S. manufacturers, the department decided in favor of imposing tariffs on Chinese solar PV imports, setting rates between 2.9 and 4.73 percent, and mitigating what they ruled to be unfair subsidies.
While the coalition of manufacturers that brought the claim will no doubt be excited by the ruling, it will also be less than thrilled by the tariff rate.
The new tariff is significantly lower than the rates called for by American manufacturers, which ran as high as 100 percent, as well as the general consensus prior to the announcement which put the expected tariff in the 20 to 30 percent range.
An additional Commerce Department ruling on anti-dumping rates is expected to be issued in May this year.
U.S. measures to protect domestic manufacturers also include the creation of a new Trade Enforcement Unit, which was introduced by President Obama during this year’s State of the Union address.
The U.S. cited Chinese imports as one main cause of the high-profile bankruptcy of Solyndra, and other companies like it, last year.
Of course, China is not alone in providing support for its domestic renewable energy industry as this is one of the key measures that governments use to expand renewable energy deployment across the globe, with some type of government directed fiscal incentive for renewable energy found in 80 countries through early 2011.
American manufacturers feel, however, that they are unable to compete with what they see as artificially low prices on components coming from Chinese factories in particular.
A recent NREL study determined that Chinese manufacturers actually face a 5 percent true cost disadvantage, when trans-oceanic shipping costs are taken into account, compared to U.S. manufacturers, and it is “massive government subsidies” that have driven their export strength.
India has expressed concerns about Chinese manufacturing similar to those coming from the U.S. and some foresee a formal complaint coming from them on this matter as well.
It is undeniable that the decrease in manufacturing prices for renewable technologies, such as solar PV, has contributed to their recent incredible growth levels. Last year alone the cost of solar PV panels decreased by 30 percent.
These cost reductions are being matched with increased deployment; for example, 16.6 gigawatts (GW) of new solar power capacity were installed between 2009 and 2010, bringing the global capacity to 40 GW by the end of 2010.
The U.S. installed 2.5 GW of new solar PV capacity during that period.
While decreased production costs may prove difficult for American manufacturers to compete with, a host of other jobs are reliant on the growing use of the technology.
A 100 percent tariff on solar imports from China, as had been called for by some manufacturers, has been estimated by some to be enough to decrease the U.S. workforce by 50,000 net jobs over the next three years, although this outcome is disputed by others.
Alternative analysis has predicted long-term net job gains resulting from the tariff, however, the impact of raising costs would appear to be at the very least a temporary setback for the U.S. solar sector as a whole, and especially painful for installers who rely on growing solar PV demand driven by decreasing prices.
Similar to the United States and China, Japan and Canada have found themselves entangled in a trade dispute centered around renewable energy support policies as well.
Japan has challenged the legality of the Feed-in Tariff (FIT) program covering multi-technology renewable development in the Canadian province of Ontario since first bringing it to the attention of the WTO in 2010.
Japan was joined by the EU at the beginning of 2012 to challenge the domestic content provision promoted in the Ontario law.
The “made-in-Ontario” provision features a stipulation requiring a “minimum required domestic content level” to qualify for the financial support offered by the FIT.
This level varies depending on the technology being used and the scale being promoted, but ranges from a minimum of 25 percent to a maximum of 60 percent domestic content required to be eligible for FIT support.
The legality of FITs themselves is not being challenged by Japan or the EU; in fact, Japan, 21 EU member-states, as well as 65 other countries, states and provinces worldwide, had their own FIT laws as of early 2011.
Japan and the EU contend that this specific provision of the Ontario law unfairly promotes domestic manufacturing, and does not comply with certain rules set out under the General Agreement on Tariffs and Trades (GATT).
The Ontario FIT is nearing the end of its scheduled review phase, with recommendations expected at the end of March, though the provincial government is steadfast in its assertion that the local content provision will not be changed.
Interestingly, while the Canadian federal government is beholden to WTO rulings, individual provinces are not, meaning any potential ruling against Ontario would most likely be unenforceable as the Canadian federal government does not have authority over the Ontario FIT law.
Government support programs for renewable energy will not be going away anytime soon, although the outcome of these international disputes could significantly impact the tools governments have at their disposal for promoting their own domestic renewable sectors.
In fact, some European countries are distancing themselves from the EU challenge as they have similar FIT programs in place.
As renewables continue to grow, there will be increasingly more money at stake for these countries and companies competing within the international market and it would not be surprising to see more cases like these continue to arise.
Evan Musolino is a Research Associate for the Climate and Energy Program at the Worldwatch Institute