Skip to main content

Free trade for green trade: To support clean energy, open up trade in green technology

Jonas Meckling, assistant professor, energy and environmental policy | August 10, 2015

By Jonas Meckling and Llewelyn Hughes

In the run-up to the Paris talks at the end of the year, governments are preparing their strategies to negotiate national emissions reduction targets. But elsewhere, a different battle is unfolding as firms and governments compete to try to capture the benefits of the rise of the new green economy. A wave of trade disputes in clean energy industries is one result. Since 2010, at least 11 such cases have been initiated. Trade cases in solar photovoltaics, in particular, have emerged as some of the most politically charged in recent history.

Trade disputes over subsidies and price dumping have the potential to stymie the deployment of low-carbon energy technologies by increasing their price relative to fossil fuels. And they are unnecessary; most arise out of the assumption that the clean energy race is a zero-sum game between competing national and regional economies. But that isn’t how green industries work, and government policy needs to catch up with the reality that domestic firms (and efforts to protect the environment) benefit from free trade in the clean energy industry.

solar panels

Solar-power trade disputes are highly charged politically.

Global green

When clean energy technologies such as solar photovoltaics and wind entered the mass market a decade ago, producers were largely manufacturing locally for consumers in the United States, Europe, and Asia. Global trade, particularly in anything other than final products, was limited. In such a world of national or localized production, trade protection may indeed have served as a useful tool for securing jobs against unfair competition.

Today, however, firms often specialize in specific segments of the production chain, and these chains can stretch across the globe. Firms sell machine tools and other products to companies in China and elsewhere and others buy the final products from China to sell in their home markets and elsewhere.

The case of solar photovoltaics, the largest renewables industry globally, is a prime example. Data show that companies in the United States and Europe commonly sell tools, equipment, and polysilicon to module manufacturers in China, which are best suited to cheaply produce the modules. This system brings down the cost for project developers and installers around the globe

Our data demonstrate that the majority of solar industry players in the United States and Europe prefer open trade with China, as do companies in Japan that have integrated operations on the Chinese mainland. Yet trade disputes between China on the one hand and the United States and the European Union on the other continue to reverberate, and have expanded to other markets.

Solar powered

The global clean energy sector could be so rancorous for several reasons. Our research into the emergence of trade disputes in solar photovoltaics suggests that one possibility is that green industries are likely candidates for protectionist agendas precisely because they are in the public eye. Consumers are familiar with the products, and the industries are at the center of the debate on climate change.

container ship on water

(Photo by Buonasera via Wikimedia Commons)

The solar photovoltaics industry is a good demonstration of the dynamic. Both the EU and the United States have taken a stand against imports from China, and Japan has stood on the sidelines. Ultimately, the EU settled its dispute with China over subsidies and price dumping by agreeing on a minimum price and import limits. The United States has maintained and even increased unilateral import tariffs.

In both the European and U.S. markets, many firms that benefit from trade with China have balked; for instance, the Coalition for Affordable Solar Energy — an alliance of mostly project developers and installers — opposed tariffs. Yet in both instances, this did not prevent policymakers from launching investigations into the competitive practices of the Chinese solar industry. In the EU’s case, the action might have been the result of the European Commission seeing an opportunity to gain bargaining leverage in broader trade negotiations with China. Solar had all the features of a case that would get broad public support, meaning that big picture politics triumphed over the more nuanced calculations of the industry.

The trade fight between solar firms in the United States and China, which has involved two separate investigations since 2011 and is ongoing, looks like other classic trade cases in many respects. It pits domestic manufacturers against downstream developers who prefer cheaper inputs, and others who stand to gain from ongoing open trade. Unlike the EU, the United States is not legally required to consider the interests of the users of imports, which reduces the incentive to reach a settlement.

In 2014, the solar dispute was escalated when the U.S. government broadened the tariffs to include imports of solar modules from China that contained components made in Taiwan or other countries. The U.S.-Chinese solar case has thus become a political problem as well as an economic one, which is bad news for the green industry and for the climate.

Trade trials

All parties in the U.S.-Chinese dispute should work hard toward a settlement, as in the EU case. The survival of large parts of the U.S. solar industry — and the continued decline in the cost of a clean technology that is allowing it to begin to compete with fossil fuels — depends on de-escalating trade rows.

In the long run, to make globalization work for clean-energy industries — and, in turn, for the environment — governments will have get behind institutions that safeguard the benefits of the new complex interdependence in manufacturing. There are several possible approaches. Last summer, 14 World Trade Organization members — including the United States, the EU, and China — launched negotiations for a trade agreement on environmental goods and services in Geneva.

This is a step in the right direction. To date, the negotiations are focused on tariffs, but they need to also include non-tariff barriers, such as imports quotas or local content rules, which are a much larger roadblock for clean energy industries. In addition, governments need to consider how to rebalance domestic laws, as experts at Harvard University and Duke University, among others, have proposed, to give greater recognition to environmental interests in the resolution of trade disputes.

Making globalization work for clean energy is the other side of the coin of international emissions cuts. There is no Paris without Geneva. After all, we will only reach international climate targets with abundant and cheap clean technology.

This piece was published originally on ForeignAffairs.com.

Llewelyn Hughes works at the Crawford School of Public Policy, Australian National University, and is research director for GR-Japan, a government affairs and public-policy consultancy focused on the Japanese market. 

Comments to “Free trade for green trade: To support clean energy, open up trade in green technology

  1. Time for humanity to start afresh by re-investing in space and clean energy research which allows our sought after resources to come from locations other than sacred lands. Our beautiful planet and its ecosystems need not suffer any more from mining but the companies which exist for this purpose can adapt their skilled staff to begin a new focus on the rare earth fruit of near earth asteroids. The planet needs clean water, clean energy, and temperature decrease. We need to cool down on so many levels.

    Informed leaderships is the result of solid researches who work towards peace through a greater understanding of science and history. Fossil fuel may be going extinct but its lands are still valuable for other geologic reason. The human race is adapting as it always does. Big news to come from UC Berkeley!

  2. Government should have higher awareness towards industrial production/manufacturing because it is the root cause of major pollutions to our mother earth.

  3. “Dumping” is predatory pricing for the purpose of eliminating competitors.

    For example, Rockefeller infamously dumped oil into the Cincinnati market to drive out competitors.

    Corporations that market goods in the consumer market obviously benefit when the input product available to them from predatory state-capitalist manufacturers is below cost … hence these nations and dumping-benefactor corporations lobby hard with all manner of half-truths.

    There is a huge need for U.S. policymakers to stand firm against nations that engages in “dumping” via predatory pricing and stand firm against opinion molders in corporations and universities blowing fraudulent smokescreens of “free trade” and “manufacturing interdependence.”

    Note that the corporations that convey “dumped” products into the U.S. book the resulting profits outside the U.S. in low-tax or no-tax jurisdictions so they have a powerful greed incentive to coach their shills to tout “free trade” while the domestic industry suffers unfairly, far outweighing any small benefit to consumers.

    Also, the renminbi’s overnight devaluation, the largest since that modern exchange-rate system began in 1994, is yet another manipulation to gain manufacturing and export advantage and mocks “free trade” verbal ruses.

    Finally, since the price of solar installations has been plummeting (IBISWorld), it’s simply untrue that taking a principled stand against “dumping” hurts green energy and encourages fossil fuels.

Leave a Reply

Your email address will not be published. Required fields are marked *