The government of India is set to impose antidumping duties on solar panels imported from the United States. These duties represent just one more episode in the bizarre saga of global solar protectionism that has seen governments in Europe and the United States impose tariffs on solar panels while simultaneously subsidizing the consumption of solar power. Unfortunately, India seems set on following Western economies in the pursuit of irrational green industrial policy.
The increased duties are sure to further inflame a preexisting dispute between India and the United States over solar power subsidies. The WTO is currently reviewing a U.S. complaint against India for requiring that subsidized solar power plants use domestic solar panels.
Imposing tariffs on foreign panels is just another way to achieve the same protectionist goals and is equally bad for India’s economy. Either way, the demand for domestic panels is artificially inflated, enabling Indian panel makers to charge less competitive prices. The losers from this policy are not just U.S. manufacturers, but also Indian consumers, Indian taxpayers, and every other business in India.
The Indian case is especially exasperating because, as reported in the Wall Street Journal, India’s government is hoping to dramatically increase its domestic manufacturing base. There are few policies more detrimental to achieving that goal than an increase in the cost of energy.
The great irony is that government-led schemes to promote the use of renewable energy are one of the greatest obstacles to the development and broad adoption of solar technology in the future. This ought to be intuitive. Just imagine if the government had decided in the 1960s that computers were important to the future, but since they were slow and big and clunky, we should develop bureaucratic incentive programs to usher in a new high-tech economy. Does anyone really believe such a policy would have hastened the adoption of digital technology or enabled development of the innovative devices, services, and business models that have revolutionized American life?
The inconvenient truth is that green industrial policy isn’t going to lead to a future of renewable energy, but it does benefit cronies and politicians. Bureaucrats who don’t make decisions based on market realities still respond to incentives, making them susceptible to capture by special interests at public expense (see Solyndra). Even if bureaucrats are enlightened saints, the centralization of decision-making benefits large firms at the expense of entrepreneurs and other innovative competitors. Over time, the relationship between commercial success and political acumen leads businesses to invest more in lobbying and leads to a culture of rent-seeking and privilege.
The global proliferation of protective tariffs on solar and wind energy components offers one of the clearest examples of how industries built on government subsidies learn to rely on government solutions. It’s what they know how to do. The result is an irrational government policy that taxes what it subsidizes, funneling all the benefits toward an increasingly narrow group of people—the green energy future be damned.
The most immediate policy fix for this problem is for countries to agree to zero tariffs on all “environmental goods” like solar panels. There are already efforts in place at various international fora to work out just such an agreement. As Simon Lester and I pointed out in a policy bulletin last year, if an environmental goods agreement is going to be truly effective, it must include a moratorium on antidumping duties like the ones currently imposed by the United States, the EU, and now India.