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Trade Barriers Are Slowing the Energy Transition


shuting pomerleau is a research manager in climate policy at the Niskanen Center, a Washington-based think tank. The piece is adapted from an analysis on the Niskanen Center’s website.

Published May 20, 2022


Unless you’re a serious environmental news junkie, you probably missed the Biden administration’s announcement that it would extend President Trump’s tariffs on solar cells and components — but with modifications to reduce the sting. The latter is modest comfort, though. Extending the tariffs, albeit with more generous workarounds, will still do more harm than good to the domestic industry it’s meant to protect, not to mention hobbling efforts to meet President Biden’s ambitious climate goals.

Getting in Is Easier Than Getting Out

The Trump administration’s tariffs started at 30 percent in February 2018, gradually declining to 15 percent in 2022. Most developing countries were exempted. But not the one that really counted: China was the major target, having manufactured 80 percent of the world’s photovoltaic products in 2019.

President Biden’s executive order extends the Trump-era tariffs for another four years, but will somewhat ease their restrictions. Specifically, the administration doubled the quota that can be imported tariff-free annually from 2.5 gigawatts to 5 gigawatts worth of solar cells, roughly one-fifth of domestic installation at the current pace.

Extending the tariffs will, of course, mean that domestic consumers will pay more than they would with free trade. Ironically — and unintuitively — it will also slow the growth of the domestic solar industry. For while solar equipment manufacturers benefit from protection, they account for a small portion of the value-added by U.S. solar industry as a whole. Most of the U.S. solar value chain consists of installation and project development.

A few numbers tell the story. In 2020, 150,000 Americans were employed in installation and development, and just 31,000 in manufacturing the equipment. Levying tariffs on imported solar products means higher solar panel prices in the U.S., reducing total sales of panels and costing jobs in the downstream solar sector. The Solar Energy Industries Association estimated that, all told, the solar tariffs resulted in 62,000 fewer jobs between 2017 and 2021, 10.5 gigawatts of lost solar deployment and $19 billion in lost investment.

Maintaining the solar tariffs will also risk a round of tit-for-tat tariffs from U.S. trading partners in the clean energy sector. Past experience is a cautionary lesson. The Obama administration put in place anti-dumping and countervailing duties on Chinese solar products in 2012. This resulted in retaliatory tariffs from Beijing on polysilicon, a key raw material for solar production which was exported by the United States.

One of the arguments used to support the tariffs is that solar products manufactured elsewhere, notably in China and Southeast Asia, are made with more carbon-intensive production processes. They contend that tariffs need to be put in place to offset the higher emissions. However, a more efficient means of leveling the playing field between U.S. and foreign producers would be to enact a domestic carbon tax in the United States and implement carbon border adjustments. Carbon border adjustments would tax the emissions content of goods based on where they are consumed, regardless of where they are made.

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Tariffs are protectionist policies that create winners and losers across the value chain, while hurting domestic consumers. If the Biden administration had kept its eyes on the prize — a rapid transition to a low-carbon economy — it would have allowed the solar tariffs expire entirely, helping to deploy solar power as quickly and widely as possible.

main topic: Energy