The U.S. Department of Commerce just announced that it will add high tariffs for solar modules imported from China. The Canadian government is also investigating the adoption of similar measures, following recent complaints filed by Ontario-based solar manufacturers. With the solar industry in hypergrowth, it’s not a surprise that these governments are interested in boosting new jobs, protecting their economies, and fostering the solar sector. The problem is that tariffs are a short-sighted approach that actually attack the future of North American solar on its home soil, and likely destroy more jobs than they create.
Editor’s note: Learn more about the solar tariffs here.
Our Competitive Advantage Is Value-added Services, Not Manufacturing
Manufacturing is a low-margin business compared to the higher margin solar sectors like installation, engineering, and operation. These value-added services comprise one of the fastest growing job markets in the U.S. Although tariffs are typically meant to protect domestic workers, that’s exactly who they will be hurting.
Currently, solar developers and installers — like Vivint, SolarCity, Sungevity, and UGE — are leading the world in renewable energy business model innovation. These companies have rapidly expanded in North America and have also exported these new business models to regions all around the world. This is a clear area where the U.S. has a competitive advantage. Each of these fast-growing businesses employs hundreds to thousands of workers, and these are service jobs that cannot be outsourced. (Meanwhile, SolarWorld, the German solar panel manufacturer who has led the charge in the U.S. against imported panels, just announced a massive expansion of manufacturing this will only add at most 200 jobs).
By comparison, U.S. solar manufacturing (and Canadian, for that matter) is a small industry. China has developed unparalleled expertise in this area, with Yingli and Trina solar modules the top two suppliers in the world, each holding more than 5 percent of total market share. Though that may be a threat to U.S. manufacturers, it can actually be a big benefit to the global economy in terms of providing the most cost effective solar panels, and by extension more affordable energy. The U.S. Commerce Department needs to take a look at the industry holistically, rather than focusing on such a thin slice of the solar economy. Tariffs are actually shrinking existing competitive advantages in solar, and harming the potential for local solar adoption, under the auspices of trying to protect this very small manufacturing sector.
Expensive US Electricity Will Force Businesses Elsewhere
Cheaper technology has spurred the dramatic rise in solar adoption that we’ve seen over the last few years. Deutsche Bank just issued a report anticipating that solar will reach grid parity in all 50 states by 2016, and these trends have been expected to continue. But this depends on technology costs staying competitive.
High tariffs significantly raise the material costs for U.S. solar developers and installers, driving project costs 5 to 25 percent higher than in a country without the tariffs. That same 5 to 25 percent cost addition means developers like UGE can offer electricity rates to companies outside the country that are 5 to 25 percent less than what is offered within the U.S. In our global economy, that means businesses will move their operations elsewhere. New facilities will open in locations where energy is cheaper, and with them, the U.S. will lose out on new construction jobs, manufacturing jobs, and other economic benefits like tax revenue.
U.S. Consumers — And Our Climate — Lose
Beyond the benefits to the U.S. solar industry, low module costs have impacted all energy consumers. For the first time, it has been possible to transition to renewable energy not only for the environmental benefits, but because it’s more cost effective. This has huge implications for mitigating climate change, improving our energy security, and stabilizing the cost of energy resources.
The U.S. and China just made a landmark agreement to reduce carbon emissions, and we are already seeing progress worldwide. Tariffs have the potential to derail this significantly. They hurt consumers who will either have to pay more to switch to solar energy or won’t make the transition at all, and the additional costs, in the form of those tariffs, go straight into government coffers. That will ultimately be the biggest cost of this policy if it stays in effect — it will stall the tremendous progress that the solar industry has been making to transform how the U.S. and the world gets energy.
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