Manufacture This

The blog of the Alliance for American Manufacturing

It’s not an either-or. We must do both to achieve success.

The clean energy revolution is here, and China is winning.

That’s one of the main takeaways of a recent op-ed from Carrie Scherpelz in USA Today. In the piece, Scherpelz quite rightly argues that the United States needs to invest more heavily in its clean energy sectors to compete globally against countries like China.

But Scherpelz misses the point on trade enforcement, specifically the 30 percent tariffs recently issued on Chinese-made solar panels.

When it comes to the clean energy industry, we cannot ignore the realities that exist in the global economy. China heavily subsidizes its clean energy goods (like solar panels) and then exports them to the United States at rock bottom prices, driving many American makers out of business.

It would be fractured public policy to purely focus on investments in domestic clean energy manufacturing without also addressing China’s trade cheating. Tariffs exist to police bad behavior, forcing actors like China to operate by the rules that govern our open market. 

Without trade enforcement tools like the solar tariffs, domestic manufacturers in this sector will continue to compete against imported products at an artificially low cost. No amount of investment in research and development will help American companies and workers if China’s dumping of unfairly traded goods in our market continues unchecked.

But by combining the solar tariffs with federal and state public policy targeted to grow clean energy generation projects, we have an opportunity to improve our economy by reinvesting in the domestic manufacturing sector, fostering a competitive environment for clean energy manufacturers, utilizing the existing programs at policymakers’ disposal, and offering new opportunities for American workers.

There's a Good Reason to Utilize Tariffs

Let’s get this out of the way: The Trump administration's attitude toward climate change is abysmal.The president pulled out from the Paris Climate Agreement, his administration has revised (and continues to take aim at) important environmental regulations, and Trump exploited America’s struggling coal communities for political gain, for a start.

But let us not confuse that with the actions taken to combat unfair trade in solar photovoltaics.

American solar panel manufacturers have faced an onslaught of unfairly traded goods for years. In fact, it was former President Obama who first took action back in 2012, issuing antidumping tariffs on Chinese solar panels at a rate of 31 percent. But many Chinese companies found ways around the duties, and so Obama imposed additional tariffs in 2014 that ranged between 18.56 percent and 35.21 percent.

The Trump tariffs start at 30 percent, and go down to 15 percent in year four. That rate is even lower than the 35 percent proposed by the International Trade Commission, which was a rate that U.S. solar developers saw as modest, and many met with a sigh of relief.

I’m not going to say that tariffs aren’t going to have some effect on the industry, but it is not the doomsday scenario some are making it out to be. The solar panels themselves constitute about 20 percent of the cost of converting a home or business to solar energy. Yet, according to Keith Graepler, president of SunSource Homes Inc, the net result of the 30 percent tariff is solar costs increasing modestly;  and, instead of taking eight years for a solar installation to pay for itself, it may take eight years and a few months.

The tariffs address bad behavior in the global market, and attempt to correct it. The environmental destruction and human toll of China’s renewables manufacturing, in hand with the illegal government export subsidies and tax incentives for solar, make it extremely difficult for legitimate, law abiding global manufacturers to compete.

Roughly 95 percent of China’s solar production was exported in 2010.  China’s export driven market was established by “aggressive” Chinese government subsidies and handouts to solar manufacturers to cash in on consumer subsidies in other countries. But WTO rules “prohibit export subsidies” in order to “prevent governments from trying to help their companies gain in world markets.

As the New York Times explained:

China’s method is straightforward: it sets forth industry-specific Five-Year Plans and then uses all forms of national and local subsidies and other governmental support to quickly transfer jobs, supply chains, intellectual property and wealth, to the permanent detriment of U.S. and global manufacturers.

Both national and local Chinese governments offer illegal subsidies to exporting solar manufacturers. Subsidies range from “heavily discounted land” and tax exemptions to “export assistance grants” and “export insurance at preferential rates.” With a constant supply of up-front cash grants and loans, Chinese solar manufacturing companies develop huge capacity. Because these products are destined for global trade purposes China’s subsidies are illegal.

Should the United States decide to once again focus public investment in clean energy manufacturing for its domestic market, that would be smart complimentary domestic manufacturing policy to the tariffs the past two administrations have issued.

The United States Has the Tools to Win

A great deal of clean energy manufacturing occurs in the United States, and the targeted investments made in the American Recovery and Reinvestment Act (ARRA), helped those industries develop. 

The large sums of public spending toward clean energy projects included a preference for the use of domestic iron, steel and manufactured goods where possible. These investments in domestic clean energy manufacturing in both the renewable energy sector and the energy efficiency sector provided these industries the ability to grow and mature.

But after the initial ARRA investment, the lack of comprehensive climate change legislation on the federal level essentially left climate change to state governments to address. Things have been… lagging.

So, where do we go from here? It starts with a strong manufacturing base, which is important not only to ensuring these industries can develop but also supporting middle class job growth.

Right now, many clean energy jobs are centered on installation. That means that once a solar panel or wind turbine is installed, most of those jobs go away, and only a handful of people are needed to maintain them.

And when you compare wages, fossil fuel industries continue to dominate. Median pay for a petroleum engineer is around $132,000 a year, while a solar panel installer makes about $39,000 a year.

Switching to cleaner energy will likely led to lower energy costs and be better for the environment in the long term. But for communities tied to fossil fuel energy production and transmission, the loss of these old school industries can be devastating.

One solution to this predicament is to invest in ways that ensure we can manufacture the inputs needed for wind farms and solar energy here in the United States. New clean energy factories should be built in the communities that stand to lose jobs in the fossil fuel sector, and workers must be retrained to gain the skills needed to not only fill those positions, but have a viable path to prosperity in the communities in which they live.

For a strong clean energy manufacturing industry to develop, policymakers must use their resources to keep domestic manufacturers viable and competitive. This is especially important in the clean energy sector, where innovation and new technologies play large roles in a company’s competitiveness.

Public policy should reflect this by making investments in fostering communication between clean energy manufacturers, consulting firms, and university research resources. This means continuing existing policies that aid clean energy manufacturers, as well as developing new ways to improve and streamline communication between the best available resources.

The Hollings Manufacturing Extension Partnership (MEP), for example, is an existing federal program administered by the Commerce Department and the National Institute of Standards and Technology that offers local access and tailored support for small and mid-sized manufacturers.

Each state has MEP partners that provide consultation to local businesses on technology innovation and increasing competitiveness. This can be as simple as helping companies improve their energy efficiency to lower costs or as complex as retooling a manufacturer’s equipment, process, and workforce to join a new industry. Using these resources as part of a focused clean energy manufacturing strategy will enable local access to new innovations, university research, and general information on energy efficiency and supply chain development.

The continuation and expansion of these network-building initiatives are an important element of a clean energy manufacturing strategy. While financing for companies might be the most immediate need, collaborative research and innovation efforts like these are what will allow the United States to brand itself as a friendly place for clean energy businesses and encourage further investment and expansion in our clean energy supply chain.

Policymakers must also analyze the existing workforce training programs and provide recommendations on improving these to meet the needs of the growing clean energy industry. It is important to use existing workforce training infrastructure rather than creating new programs. Policymakers need to achieve greater integration between the state and the different institutional participants: training providers, unions, schools, and businesses.

It should be no surprise that the United States’ economic success is a result of public and state funded investments in innovation and technology.  Every technology that makes the iPhone what it is, the Internet, GPS, the touch screen, and Siri all came from government-funded research.  

Had that research money required some return on its investment by expanding the domestic manufacturing tax base, we may see a different manufacturing landscape in the United States today. 

Scherpelz is right – the United States needs to heavily invest in clean energy, and we need to do so in targeted ways that allow all communities and workers to benefit. But for such domestic investments in clean energy to succeed, the United States also needs to protect those investments against unfair trade practices. 

Without the recent solar tariffs, any investment the United States would make in the solar manufacturing supply chain would be undermined by unfairly subsidized foreign inputs, and would likely fail. To meet the energy challenges that face us, the United States needs to use all the tools at our disposal.