June 5, 2015 12:40PM

Europe’s Solar Cartel Enforcers Struggle to Keep Prices High

In what has been aptly named “the world’s dumbest trade war,” both Europe and America have fought to limit imports of low-cost Chinese solar panels.  Much to the chagrin of anyone who likes solar power, the United States and the European Union have imposed high tariffs on Chinese panels in order to protect their own subsidized domestic industries. 

In 2013, the EU negotiated a deal with Chinese solar manufacturers that exempted them from the duties as long as they agreed to sell panels above a set minimum price.  By managing trade in this way, European authorities are essentially creating a solar cartel that divvies up market share among established companies who agree not to compete on price.

But cartel arrangements are notoriously difficult to maintain because any member of the group can ruin the scheme by reneging.  This would seem especially likely when the cartel arrangement was forced on them involuntarily by government in the first place.

So it is that some Chinese companies have tried to find innovative ways to compete despite government price controls.  According to the Wall Street Journal:

Among other violations of the settlement, the commission said Canadian Solar offered unreported “benefits” to its customers in Europe to buy their panels, effectively lowering the sales price below the minimum import-price set by the agreement.

The commission also questioned the practice by Canadian Solar and ReneSola of selling solar cells to firms in non-EU countries for assembly into panels that are then sold to the EU. Because the EU tariffs only apply to panels coming from China, the practice, though not a direct violation of the agreement, allows the two firms’ solar cells to enter the 28-nation EU unrestricted by the agreement.

Darn those Chinese and their legal attempts to help Europeans reduce greenhouse gas emissions through mutually beneficial exchange.  Don’t they know the EU wants prices to stay high to prop up subsidized domestic producers?  Shame on them!

In all seriousness, green industrial policy has become a global problem that will only grow as long as governments find the benefits of free trade in wind and solar power equipment less appealing than doling out privilege through managed trade.