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.
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
Green industries are likely candidates for protectionist agendas precisely because they are in the public eye.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 other continue to reverberate, and have expanded to other markets.