This article is part of our special report Free Trade for Growth.
SPECIAL REPORT / A spate of climate and clean energy-related trade squabbles is heightening fears that as recession advances, the world could be entering a period of tit-for-tat conflicts, many involving China.
In the last month, the EU has followed the US in launching an ‘anti-dumping’ probe into Chinese solar panels, China announced a suit against Washington for blocking a wind farm deal on national security grounds, and the US Senate passed a bill exempting its airlines from the EU’s Emissions Trading System (ETS).
“There are a lot of areas where countries are taking shots at each other and if China reacts, it could definitely spiral out of control,” said Mahesh Sugathan, a research fellow at the Geneva-based International Centre for Trade and Sustainable Development (ICTSD).
“The best thing would be for everyone to take stock of the issues because each country could hurt every other one,” he told EURACTIV.
On 10 October, the US Department of Commerce upheld duties of between 18% and nearly 250% on Chinese solar panels, which benefitted from what Bloomberg New Finance says were state-backed credit lines of up to $47.3 billion (€36.5 billion).
The revenues available to Chinese solar firms may be way beyond the resources available to their Western competitors, but these companies say the funds often come in the form of framework agreements rather than cash in the bank.
This could still be used to leverage investment on capital markets, however.
“China has in the past always had a tendency to react or announce counter-measures and that is what we have seen with the US case,” one industry source said.
Jodie Rousell, a spokeswoman for the Alliance for Affordable Energy (AFASE) which supports some Chinese solar companies under EU investigation was hopeful that Brussels and Beijing could defuse the spat.
"Unilateral measures are not in the interest of the global solar industry, especially after German chancellor Angela Merkel called for a negotiated solution" she told EURACTIV.
"One wonders what role the timing of the US elections has played influencing the outcome of the US investigation," she added.
Some European industry sources say that the EU has been unofficially threatened with a similar suit, and that the continent’s solar manufacturers have also been pressured with trade threats unless they oppose the EU’s probe.
“This is a bluff,” said Milan Nitzschke, a Vice President of SolarWorld AG, whose EU Prosun alliance submitted the complaint that triggered the EU’s probe. “They have to buy European silicon because they’re not able to produce enough to supply themselves.”
Nonetheless, the stakes in such disputes are high. Ottawa has linked a planned $20 billion EU-Canada Free Trade Agreement to the EU’s plans to classify its tar sands as more polluting than conventional fuel – and threatened retaliation, according to censored EU documents released in a Freedom of Information request.
Isaac Valero, a spokesman for EU Climate Commissioner Connie Hedegaard, played down talk of a possible trade conflict over tar sands or the inclusion of international airlines in the EU’s Emissions Trading System (ETS).
“It takes two to have a war, and from our side there's no interest whatsoever to have any,” he told EURACTIV. “The European Commission makes every effort to avoid talk of ‘trade wars’ or use language that may stoke trade tensions.”
Analysts say that the current wave of climate disputes is motivated by a variety of factors; the ‘energy crunch’, a slowing of the world economy and shrinkage of clean tech markets, intensifying competition between manufacturers, over-supply of solar capacity, and politicisation of climate politics.
Joachim Monkelbaan, an ICTSD officer said that peak oil and the desire to preserve European manufacturing jobs in a global clean tech industry that attracted $260 billion of investment last year was also salient.
“Governments have a special interest in the renewable energy sector and they are still trying to find roles for their own countries in the global industry,” he told EURACTIV. “This means that governments are not always acting rationally on trade policies.”
As an example, he cited figures showing that 80% of jobs in the solar panels industry come from ‘downstream’ sectors such as sales, marketing, installation, and maintenance – which he said could benefit from cheap Chinese solar panels – rather than manufacturing.
EU Prosun disagrees, and sees a link between the solar and wind power suits in the US. “Everything is related to everything here,” Nitzschke said. “We are talking about the key technologies for the future.”
One common theme in the renewables sector is a perceived need not to punish first movers, whether carbon market pioneers or solar panel manufacturers.
First mover advantage
“We have been the first movers in Europe,” Nitzschke said. “There should be a first mover advantage but in the end it is actually a disadvantage because of unfair trade.”
Innovation depends on an initial capital outlay but ‘second movers’ can often duplicate the first movers’ technology without their research and development expenses, and drive them out of business before they reap long-term rewards.
AFASE says that European solar manufacturers lost out in the solar race by inking long-term contracts with polysilicon suppliers just before prices crashed, leaving them locked in to cost overhangs.
Prices for polysilicon, a key solar panel component, slumped from $450 a kilo in 2008 to around $25 a kilo today, due to massive global over-production.
EU Prosun representatives say that they have adjusted their contracts and now pay close to the global spot market price for their polysilicon supplies.
One thing the rival solar alliances agree on is the limited effectiveness of the US tariffs slapped on Chinese solar panels, as defined by country of origin.
“The Chinese established a way of circumvention by selling solar wafers to Taiwan and buying back solar cells made from those wafers, and then assembling them to solar modules in China,” Nitzschke said. “This was a big mistake.”
The real tariff on Chinese solar modules could thus be substantially lower than the headline figure, and have far less effect on their exports.
John Clancy, a spokesman for the EU trade commissioner, Karel de Gucht, said that the European probe was taking steps “to ensure that we encompass a broader scope in terms of the investigation” than was undertaken by the Department of Commerce.
The percentages in play in the EU's investigation are disputed, because of the use of upper and lower dumping figures. But although margins of up to 120% are cited, some industry sources expect a final figure of around 30% to be determined.