Solar Panels Trade Case Mocks Washington’s Ways

Later today the U.S. Department of Commerce is expected to announce preliminary antidumping duties on solar panels from China. This case might normally be met with an exasperated sigh and chalked up as just another example of myopic, self-flagellating, capricious U.S. antidumping policy toward China.

But in this instance the absurdity is magnified by the fact that Washington has already devoted billions of dollars in production subsidies and consumption tax credits in an effort to invent a non-trivial market for solar energy in the United States.  Imposing duties only undermines that objective. With brand new levies on imports to add to the duties already being imposed on the same products to "countervail" the lower prices afforded U.S. consumers by the Chinese government’s production subsidies, the administration’s already-expensive mission will become even more so – perhaps prohibitively so.

It’s not that President Obama and the Congress woke up one morning and agreed to craft policies that simultaneously promote and deter U.S. solar energy consumption. But that’s what Washington – with its meddling ethos and self-righteous politicians – has wrought: policies working at cross-purposes.

The Economic Report of the President in 2010 (published before Solyndra became a household name) boasts of the administration’s tens of billions of dollars in subsidies for production and tax credits for consumption of solar panels. This industrial policy continues to this day and there is no greater cheerleader for solar than the president himself. In this year’s State of the Union address, President Obama said:

I’m directing my administration to allow the development of clean energy on enough public land to power three million homes.

One month later, noting that 16 solar projects have been approved on public land since he took office, the president said:

[Solar] is an industry on the rise. It’s a source of energy that’s becoming cheaper. And more and more businesses are starting to take notice.

The president has couched his support for solar in terms of what he sees as the environmental imperative of reducing carbon emissions and slowing global warming. Thus his policy aim is to encourage consumption by making solar less expensive to retail consumers with production subsidies and consumption tax credits. (Of course, lower-cost solar is a mirage – accounting smoke and mirrors – because the subsidies come from current taxpayers and the tax credits deprive the Treasury of revenues already earmarked, forcing the government to borrow, burdening future taxpayers with principle and interest debt, which is paid with higher taxes down the road).

However, the president also sees solar and other green technologies as industries that will create great value, spawn new ideas and technologies, keep the United States at the top of the global value chain, and serve as reliable jobs creators going forward. And he seems to think that realization of that objective requires his running interference on behalf of U.S. producers.  He says:

Countries like China are moving even faster. . . . I'm not going to settle for a situation where the United States comes in second place or third place or fourth place in what will be the most important economic engine in the future.

There is nothing incompatible about holding the simultanous beliefs that greater use of solar power could reduce carbon emissions and that a solar industry has great potential to spur innovation, create value, and support good-paying jobs.  But promoting the realization of both premises simultaneously through policy intervention is a fools errand, and we are caught in its midst.

Efforts to protect and nurture these chosen industries by keeping foreign competitors at bay is incompatible with the president's environmentally-driven objective of increasing retail demand for solar energy.  Intervening to reduce the supply of solar panels will cause prices to rise and rising prices (particularly in light of abundant cheap alternatives like natural gas) will cause demand to fall.  Sure, we may be left with some protected producers in the short-run, but how will they endure without customers.

That question is, apparently, far from minds of perennial interventionist Senator Chuck Schumer (D-NY) and arch-protectionist Senator Sherrod Brown (D-OH).  Just this week, the duo released a proposal that would make ineligible for the 30% tax credit, solar panels made outside of the United States, claiming that "Chinese solar panel producers' eligibility for tax credit undercuts Amercian companies and jobs."  The senators should tell that to the American business owners and employees in the much larger and more economically significant downstream industries that install and service solar panels in the United States.  The proposal would cause a dramtic increase in the retail price of solar panels and imperil livelihoods in these downstream industries.

This Cato video should be required viewing for Washington's meddling policymakers.