BLOCKING the SUN with a CLOUD of TARIFFS: Patrick Newsum*

BLOCKING THE SUN WITH A CLOUD OF TARIFFS:

THE SOLAR TRADE WAR WITH CHINA, SUBSIDY CONCERNS AND MARKET-BASED REMEDIES

Patrick Newsum*

This Article explores the political causes and legal proceedings of the current solar energy international trade dispute in order to evaluate the characteristics of a successful market- based response to climate change. The United States and China have adopted vastly different approaches to promote the manufacture of renewable energy in an effort to bolster the position of their domestic markets in international trade. However, these efforts stand in opposition to one another, giving rise to the International Trade Commission’s recent antidumping case. The case shows, and the Article explains how in order to be successful, market-based approaches must address the domestic industry through an international lens.

To properly analyze the issue, this Article summarizes the efforts and effects of U.S. and

Chinese renewable energy policy leading to the recent ITC case. In doing so, it exposes the power of tax subsidies and national policies in fostering the development of the renewable energy sector. Drawing on these conclusions, this Article discusses the necessary policies that will allow the U.S. to benefit from a thriving domestic industry while ultimately advancing the global effort to mitigate climate change.

TABLE OF CONTENTS

Introduction ………………………………………… ……….……..3 I. The Development of a Trade War…………………………....4 A. International Trade Background……………………………...4 B. The First Shot Fired in the Solar Trade War: ITC Action…....4 C. Tariff Sprawl……………………………………………….…7 II. Subsidies at Issue in Solar War………………………………..11 A. China’s Renewable Energy Efforts…………………………....11 1. Chinese Renewable Energy Law and Policy ………….12 2. Ongoing Development under China’s Plan…………….14 B. U.S. Renewable Efforts: Afraid of Commitment………………15 1. Expiring Efforts ……………………………………..…16 2. Stalling the Market with Uncertainty ……………….…18 C. Comparison …………………………………………………....20 III. The Emerging Market and Policy Recommendations …………22 A. Avoiding Tariff Sprawl ………………………………………..23

2 B. Live and Let Live………………………………………..……..25 C. Adopting Competitive Measures ………………………………27 1. Repealing Fossil Fuels Subsidies ……………………...28 2. Extending Section 1603………………………………..29 3. Carbon Tax and Federal RPS………………………….30 Conclusion ………………………………………………………...... 32

3 INTRODUCTION

The United States is at war. There have been casualties on either side marked in bankruptcy rather than blood, yet only a single shot has been fired in a fight waged in tariffs.

China and the U.S. are pitted against one another in a trade dispute with the future of solar energy in the balance. This ‘Solar War’ is but a skirmish in a larger battle, yet the implications weigh heavy on the framework for global cooperation in combating climate change. Solar energy provides one of the most promising alternatives to the carbon-emitting energy produced from fossil fuels.1 This potential has drawn the interest of companies around the world, with solar investment increasing by over 250% annually between 2004 and 2008.2 Such investment grew to

$50 billion globally from 2007 to 2008.3 With this rush, countries like the U.S. and China have adopted extensive policy measures to promote their renewable energy industries4, raising concerns about the fairness of such policy on international trade. Recently, members of the U.S. industry turned to Department of Commerce (Commerce) and International Trade Commission

(ITC) alleging the Chinese government unfairly subsidized its solar industry.5 The first shot was the decision to impose tariffs on Chinese solar imports, but an all out fire-fight looms on the horizon. These actions deserve serious consideration when assessing the future viability of solar

*Student at the University of Kansas School of Law with a focus on corporate and international trade law. The author would like to thank Professor Uma Outka for her guidance and the entire staff of C-K JEEL for their outstanding editorial work that made this article possible. 1 Solar Energies Technology Program, U.S. Dep’t of Energy, Myths about Solar Electricity (2008), available at http://www1.eere.energy.gov/solar/pdfs/32529.pdf (The solar energy resource in a 100-square-mile area of Nevada could supply the U.S. will all of its electricity). 2 Int’l Energy Agency, World Energy Outlook 162. 3 World Econ. Forum, Green Investing – Towards a Clean Energy Infrastructure 27 (Jan. 2009), available at http://www.weforum.org/pdf/climate/Green.pdf. 4 See, e.g., Nan Sato, Red Dragon Gone Green: China's Approach to Renewable Energy Technologies, Its Legal Implications, and Its Impact on U.S. Energy Policy, U. ILL. J.L. TECH. & POL'Y, Fall 2011, 463; Wang Mingyuan, Government Incentives to Promote Renewable Energy in the United States, 24 TEMP. J. SCI. TECH. & ENVTL. L. 355 (2005). 5 Ehren Goossens & Christopher Martin, SolarWorld’s China Trade Complaint Divides U.S. Solar Industry, BLOOMBERG (Oct. 20, 2011), http://www.bloomberg.com/news/2011-10-20/solarworld-s-china-trade-complaint- divides-u-s-solar-industry.html.

4 energy as an alternative to energy generated from fossil fuels. As one solar manufacturer remarked on the E.U. trade action, “we are on the verge of grid parity [with more polluting forms of energy]…this case has the potential to set us back 15 years.”6

This paper will proceed by outlining the ITC’s decision and Commerce’s imposition of tariffs, followed by an explanation of the domestic and Chinese subsidies at issue in the investigation. Having outlined the fine points, the paper will explore the strengths and weaknesses of each country’s policy measures in relation to the ITC action. Finally, because the

U.S. and China remain the largest emitters of carbon dioxide7, they are arguably the most important players in the United Nations Framework Convention on Climate Change’s

(UNFCCC) goal for mitigating climate change. The paper will conclude by proposing a domestic market-based response that will help to achieve UNFCCC’s goals, while at the same time allowing the U.S. to reap the benefits of a thriving solar industry. The clouds are rolling in on the sunny prediction that solar energy will achieve grid parity with more polluting sources of energy.

However, this paper forecasts a chance of sunny skies after the storm.

I. THE DEVELOPMENT OF A TRADE WAR

A. International Trade Background

International trade is the source of immense profits8 and often sparks debates over the fairness of a county’s national efforts to secure a position in the global economy. The rules that govern these disputes come from various entities, some from a single country and others that span the globe. The World Trade Organization’s General Agreement on Tariffs and Trade

6 Quote from Jodi Roussell. et al., China Hits at EU Solar Panel Dumping Probe, FINANCIAL TIMES (Sept. 6, 2012), http://www.ft.com/intl/cms/s/0/26f2f140-f7fc-11e1-bec8-00144feabdc0.html#axzz26S9rivaD 7 Carbon Dioxide Information Analysis Center, Fossil-Fuel CO2 Emissions by Nation (2008), available at http://cdiac.ornl.gov/trends/emis/tre_coun.html. 8 See, e.g., U.S. Census Bureau, Trade in Goods with China, (2012), http://www.census.gov/foreign- trade/balance/c5700.html#2011 (last visited December 1, 2012) (In 2011, the U.S. ran a trade deficit with China of over $295 billion).

5 (GATT), the U.S. International Trade Commission and the Trade Act of 1930, and the E.U.’s

European Commission enforce mandates keeping trade competitive.9 In general, international trade law allows countries to subsidize goods in their domestic markets, but prohibits a government’s attempt to subsidize the export of goods to benefit a domestic manufacturer in gaining global market share.10

Most relevant to this article, the Trade Act of 1930 authorizes the Department of

Commerce to take action against a foreign country whose subsidized imports cause a material injury to a domestic industry.11 The industry in whole or in part may file a claim seeking to offset countervailing subsidies received by a foreign exporter that unfairly reduce the exported merchandise’s price.12 Also within Commerce’s arsenal is the authority to administer antidumping duties on foreign imports sold in the U.S. at less than fair value, effectively leveling the competitive playing field.13

In the preliminary phase of any antidumping or countervailing subsidy investigation under section 703(a)(1) of the Tariff Act of 1930 the ITC determines whether there is reasonable indication that an industry in the U.S. is materially injured or threated with material injury by reason of the imports under investigation.14 Material injury means any harm that is not

9 General Agreement on Tariffs and Trade, Oct. 30, 1947, 55 U.N.T.S. 194, art. VI.2, available at http://www.wto.org/english/docs_e/gattdocs_e.htm; Tariff Act of 1930, 19 U.S.C.A. § 1673 (West); Council Regulation 1225/2009, Protection Against Dumped Imports from Countries not Members of the European Community, 2009 O.J. (L 341), 51, available at http://trade.ec.europa.eu/doclib/html/146035.htm. 10 See, generally, Agreement on Subsidies and Countervailing Measures, Apr. 15, 1994, 1867 U.N.T.S. 14, available at http://www.wto.org/english/docs_e/legal_e/24-scm.pdf; United States International Trade Commission, Antidumping and Countervailing Duty Handbook, IV-7 (2008), available at http://www.usitc.gov/trade_remedy/documents/handbook.pdf, (AD/CVD Handbook provides a general overview of ITC procedure and notes the history of amendments to the U.S. Tariff Act of 1930 to abide by GATT standards). 11 Tariff Act of 1930 (Smoot-Hawley) Act § 701, 19 U.S.C.A. 1671 (1996) [Hereinafter “Tariff Act”] (General rule for imposing countervailing duties). 12 Dumping, infra note 11, 1673(2) (In general, dumping occurs when a foreign producer exports a product at less than its fair value); Countervailing duty, infra note 10, 1671(a)(2) (Countervailing duties are imposed to offset the unfair price effects of foreign countervailing subsidies). 13 Tariff Act § 731, 19 U.S.C.A. § 1673 14 Id.

6 inconsequential, immaterial or unimportant.15 In determining material injury, the ITC considers the volume of subject merchandise, effects of imports on domestic price, and impact of imports on domestic producers and product.16 “Dumping” is defined as the sale of goods at less than fair value (LTFV).17 LTFV is evaluated in part according to section § 771(7)(c)(ii): (I) whether there has been significant price underselling by the imported merchandise as compared with the domestic like product in the U.S., and (II) the effect of imports otherwise depresses prices or prevents price increases which otherwise would have occurred.18 In conjunction with a dumping claim, a countervailing subsidy investigation assesses financial contributions from foreign governments that benefit the production of goods from foreign companies, limited to specific industries, or are contingent either upon export performance or upon the use of domestic goods over imported goods.19 Financial contributions include grants, loans, tax credits or purchasing goods.20 For example, a benefit from a governmental loan exists when the interest rate is lower than what the recipient could actually obtain on the market.21 An appropriately filed complaint will begin investigations by both the Commission and Commerce to determine whether the claimed injury is by reason of dumping or countervailing duties.22

Further, under § 733(e) of the Act a petitioner may allege critical circumstances in order to apply the determination of dumping retroactively to imports during the investigation.23 Critical circumstances are determined on a reasonable belief that there is either a history of dumping and material injury, the importer knew or should have known that the exporter was selling the

15 Id. at § 771(7)(A). 16 Id. at § 771(7)(B). 17 Id. at § 771(34). 18 Id. at § 771(7)(c). 19 Id. at § 771(5). 20 Id. 21 Id. at § 771(5)(E)(i). 22 Id. at § 702(b)(2). 23 Id. at § 733(e).

7 merchandise at LTFV, or there have been massive imports of the subject merchandise over a relatively short period.24

Commerce issues a final determination of the appropriate dumping margin and countervailing duty to be effective once the ITC votes to approve the final determination.25

Antidumping margins are equal to the amount by which the normal value exceeds the export price for the merchandise.26 Countervailing duties are equal to the amount of the net countervailable subsidy.27 Commerce then orders the posting of a cash deposit, bond or other security for each entry of the subject merchandise in an amount based on both the average dumping margin and net countervailing subsidy.28 Thus, a successful claim imposes a tariff on imports to raise the price of the subject merchandise to the fair value without subsidies, allowing domestic companies to compete with imports at a fair price. The duties are imposed for five years according to § 752, subject to review once a year under § 751(a)(1) to determine if the duty is no longer necessary due to a change in circumstances.29

A. The First Shot Fired in the Solar Trade War: ITC Action

On October 19, 2011, a group of U.S. solar panel manufacturers led by SolarWorld

America, filed a complaint with the ITC seeking to impose tariffs on imports of Chinese panels because of the harm caused by Chinese manufacturers alleged dumping of panels into the U.S. market.30 The petition sought dumping and countervailing subsidy relief and critical circumstances under §§ 703(a) and 733(a) of the Tariff Act. Specifically, petitioners claimed U.S. solar manufacturers are materially injured by the import of LTFV subsidized imports of

24 Id. 25 Id. at §§ 706(a), 736(a). 26 Id. at § 731. 27 Id. at § 701. 28 Id. at §§ 733(d), 706(a). 29 Id. 30 Eric Wesoff, Solar Panel Dumping Claim: Commission’s First Decision Is Today, GREENTECH MEDIA, (Dec. 2, 2011), available at http://www.greentechmedia.com/articles/read/case-casm/.

8 crystalline silicon photovoltaic cells (CSPV) and modules from China.31 CSPV cells are assembled into finished modules that convert the sun’s energy into electricity.32 The finished modules are used in commercial solar projects, freestanding field installations and on rooftops of both residential and non-residential buildings.33 The ITC limited its scope to larger CSPV panels and did not include thin-film solar products or small solar cells used in consumer goods.34

It is important to recognize who the parties are to the action. Although SolarWorld’s name appears in the headlines, the company teamed with seven other U.S. manufacturers to form the Coalition for American Solar Manufacturing (CASM) and filed the action on its behalf. The formation of CASM came shortly after SolarWorld withdrew from the Solar Energy Industries

Association (SEIA), the leading non-profit solar trade organization.35 Respondents to the complaint included the Chinese Chamber of Commerce, Sun Edison, a U.S. purchaser of CSPV cells and modules, SunTech, a Chinese producer, and Trina Solar Inc. and Solar Solutions, both

U.S. distributors of PV products. Other U.S. producers of the subject modules were reined into the investigation as respondents because of their importation of Chinese cells.36 The orientation of the parties in support and against the complaint is therefore not strictly China versus. United

States. Instead, the division separates parties depending on their position in the solar energy supply chain. On one side sits those who favor inexpensive modules from whatever source to help lower the cost of providing solar energy. The opposing side consists of a select set of companies who manufacture modules in the U.S. and struggle to compete with the price of

Chinese imports.

31 Crystalline Silicone Photovoltaic Cells and Modules from China, Inv. Nos. 701-TA-481, 731-TA-1190, USITC Pub. 4295 (Dec. 1, 2011) (Preliminary). 32 Id. at 5. 33 Id. 34 Id. at 8. 35 John McArdle, Industry’s Group New Board Chairman Walks Tightrope on Chinese Trade War, E&E NEWS (Aug. 23, 2012), http://www.eenews.net/Greenwire/2012/08/23/archive/3. 36 Preliminary Findings, supra note 31, at 3.

9 The central issue in the action was the source of the alleged harm as viewed in terms of market volume. According to the preliminary determination of material injury under §

771(7)(F)(iii), the value of the Chinese imports increased from $228.2 million in 2008 to $1.17 billion in 2010.37 This value increased further to $3.1 billion in 2011, according to Commerce’s report.38 These figures tend to support the conclusion that Chinese companies dumped LTFV panels during the period of investigation as a result of countervailing subsidies distributed by

China’s government. However, respondents argued the increase in volume could be explained by an increase in demand due to state renewable portfolio standards39 and the section 1603 cash grant provision in the 2009 American Recovery and Reinvestment Act.40 Because section 1603 was set to expire, domestic distributors sought to import the subject panels before the deadline, thus explaining the dramatic increase in volume.41 However, in determining whether material injury to the domestic industry is by reason of subject imports, the courts do not require the ITC to address causation in any particular way.42 As long as the injury can reasonably be attributed to subject imports, the causation requirement for material injury is satisfied.43 Ultimately, the preliminary report concluded that Chinese imports received a disproportional benefit from these

44 programs, even though this benefit extended to U.S. distributors and installers.

In any event, the respondents’ arguments failed to persuade the ITC. On October 17,

2012, the Department of Commerce finished its antidumping investigation and finalized a

37 Id. at 21. 38 Int’l Trade Admin., Commerce Finds Dumping and Subsidization of Crystalline Silicon Photovoltaic Cells, Whether or Not Assembled into Modules from the People’s Republic of China, U.S. Dep’t of Commerce, (Oct. 17, 2012), http://ia.ita.doc.gov/download/factsheets/factsheet_prc-solar-cells-ad-cvd-finals-20121010.pdf. 39 Preliminary Findings, supra note 31, at 19. 40 Both the U.S. and Chinese subsidies are explained further in Section III of this article. In general, 1603 provided a cash grant of 30% of the amount of an approved solar installation. 41 Preliminary Findings, supra note 31, at 21. 42 Id. at 16 (Citing Mittal Steel, 542 F.3d at 877-78). 43 Id. 44 Id.

10 preliminary ruling, concluding Chinese manufacturers have sold CSPV at dumping margins ranging from 18.32 to 249.96 percent.45 Commerce also concluded Chinese producers received countervailable subsidies of 14.78 to 15.97 percent.46 The duties are imposed once the ITC takes a final vote on the findings, and on November 7, 2012, the ITC voted 6-to-0 to keep the tariffs proposed by Commerce.47 According to §§ 706 and 736 of the Tariff Act, Commerce will instruct U.S. Customs and Border Protection to collect cash deposits equal to the percentages above.48

Industry responses to the ITC determination are relevant to support the conclusion that the decision to impose tariffs was based on a misrepresentation of the solar industry. In a written statement, SunTech called SolarWorld’s campaign “hypocritical” cautioning that trade barriers represent a serious challenge to the growing U.S. solar industry in forcing them to “foot the bill for SolarWorld’s competitive failures.”49 Further, large companies are not the ones signing

SolarWorld’s checks. Smaller importers and installers vital to immediate solar energy deployment will face higher costs thanks to the tariffs. There was, however, a silver lining in the decision: there wasa negative determination regarding critical circumstances, so antidumping and countervailing duty orders will not apply retroactively to imports prior to the preliminary determinations.50 Had the ITC upheld Commerce’s affirmative determination, one U.S. importer would have seen the cost of an order of Chinese panels increase by 300 percent.51 It is too early to predict the true effects of the tariffs, but the international trade implications will be examined

45 Int’l Trade Admin, supra note 31, at 1. 46 Id. 47 Crystalline Silicone Photovoltaic Cells and Modules from China, Inv. Nos. 701-TA-481, 731-TA-1190, USITC News Release 12-113 (Nov. 7, 2012) (Final). 48 Tariff Act, supra note 13. 49 Eric Wesoff, Final ITC Decision on SolarWorld’s China-US Solar Trade Complaint, GREENTECH MEDIA (Nov. 7, 2012), http://www.greentechmedia.com/articles/read/case-casm. 50 Final Report, supra note 47. 51 John McArdle, SolarWorld Continues push for Retroactive Trade Tariffs During Trade Commission Hearing, E&E NEWS (Oct. 3, 2012), http://www.eenews.net/eenewspm/2012/10/03/archive/2?terms=SolarWorld.

11 in Section IV. The following section will summarize the market-based renewable energy policies at issue in the ITC case to help contextualize the issues within the global industry.

II. Subsidies at Issue in Solar War

Both the United States and China have laid blueprints for combating climate change with a market-based approach, but through different mechanisms yielding different results.52 Both petitioners and respondents in the ITC antidumping action argued government subsidies played a vital role in shaping the solar industry. China’s top-down form of government has rapidly passed laws and policies aimed at creating an entire renewable energy industry to decrease dependence on fossil fuel.53 The U.S. has pursued similar goals, but at a slower pace, relying on the free market taking advantage of renewable energy tax incentives. Using the ITC decision as a measurement of policy efficacy raises serious doubts about the U.S. approach. This section will examine the similarities and differences in both countries’ measures through a solar lens in order to outline the components of an effective national policy.

A. China’s Renewable Energy Law and Policy

China’s environmental problems have grown with its economy, a rate that is nothing short of rapid.54 This is due in large part to its dependence on coal. Over seventy percent of

China’s electricity is generated from coal, a major source of carbon dioxide emissions.55 Its economic boom since 2000 has doubled coal production, reaching three billion tons in 2008 and

52 See, generally, Joel B. Eisen, China’s Renewable Energy Law: A Platform for Green Leadership?, 35 WM. & MARY ENVTL.L.& POL’Y REV. 1 (2010). 53 See, e.g.,Todd Woody, 10 Reasons Why China is the Greentech Leader, SOLAR FEEDS (Aug. 27, 2010), http://www.solarfeeds.com/10-reasons-why-china-is-the-cleantech-leader/ (“And unlike a western democracy, when China’s central leaders make up their minds, action follows quickly.”), 54 See, e.g., Loren Brandt & Thomas G. Rawski, China’s Great Economic Transformation, CAMBRIDGE UNIV. PRESS 1, at 29 (2008) (China’s average GDP growth from 1980-2004 was 8.5%) 55 Energy Info. Admin., U.S. Dep’t of Energy, Independent Statistics and Analysis, Country Analysis Briefs: China 13 (2009), available at http://www.eia.doe.gov/cabs/China/pdf.pdf.

12 making it one of the largest coal burners in the world.56 In response to this situation, the National

People’s Congress, China’s legislature, passed its first renewable energy law in 2006 (REL) to improve its energy structure, safeguard energy security and realize sustainable development of the economy and society.57 The law was bolstered with policy in 2007, when China passed the

Medium and Long-Term Development Plan for Renewable Energy.58 Where the REL put in place the foundations of renewable energy, the Medium and Long-Term Development Plan seeks to ensure a mutual promotion of the market and industrial development, thereby fostering both demand and supply respectively.59 Within the goals of the Plan, the National Development and

Reform Commission (NDRC) aims to satisfy fifteen percent of total primary energy consumption by 2020 with renewables.60 China continues to take measures to see that these goals are met, and the REL of 2006 was amended in 2009 to include more aggressive regulations and mandates.61

1. Chinese Renewable Efforts in Practice

The REL of 2006 put into place various initiatives that spurred immense government spending and private investment. Article 24 created a renewable energy development fund to support research and construction of renewable energy systems, as well as encouraging financial

56 Id. 57 Renewable Energy Law of the People’s Republic of China (promulgated by the Standing Comm. of the Nat’l People’s Cong., Feb. 28 2005, effective Jan. 1, 2006) 2005 Standing Comm. Nat’l People’s Cong., available at http://www.china.org.cn/china/LegislationsForm2001-2010/2011-02/14/content_21917464.htm. [hereinafter REL 2006]. 58 Medium and Long-Term Development Plan for Renewable Energy in China (issued by the Nat’l Dev. And Reform Comm’n of the People’s Republic of China, Sept. 2007) 4-6, available at http://www.chinaenvironmentallaw.com/wp-content/uploads/2008/04/medium-and-long-term-development-plan- for-renewable-energy.pdf [hereinafter Medium and Long-Term Development Plan]. 59 Id. at 4. 60 Id. 61 Decision of the Standing Committee of the National People’s Congress on Amending the Law of the Peoples’ Republic of China on Renewable Energy (promulgated by the Standing Comm. Nat’l People’s Cong., Dec. 26, effective Apr. 1, 2010), 2009 China LEXIS 671 (China).

13 institutions to offer preferential loans to such systems. 62 The China Development Bank has taken part in the initiative, and made $42 billion in loans to solar and wind energy companies in

2010 alone.63 These loans are not used solely for domestic projects, but have been used to expand China’s share of the global market. For example, in September 2012, the Development

Bank issued a four billion dollar loan to Chinese company Hanergy to purchase offshore solar companies, facilitating the purchase of MiaSolé, a U.S. solar company.64 Further, China sells state-owned land to renewable technology companies at bargain prices, enabling them to build facilities and start manufacturing rapidly at low initial costs.65 These provisions explain the rapid increase in U.S. market volume of Chinese solar panels considered by the ITC.66

Although these programs raised eyebrows in the international trade community, the country remains equally focused on domestic deployment. Under Article 14 of the REL, China’s electricity grid corporations are obligated to interconnect with and purchase the electricity generated by approved renewable energy facilities located in their service areas.67 Such a measure is similar to a national renewable portfolio standard (RPS) requiring a certain percentage of electricity to be produced from renewable sources. However, the REL provision sheds the percentage requirement and mandates the use of electricity from approved facilities.68

As a corollary, Article 19 grants the State Council (NDRC) the power to organize pricing arrangements for renewable energy purchase, similar to the feed-in tariffs (FIT) used in various

62 REL 2006, supra note 49. 63 Natalie Obiko Pearson, Chinese Government ‘Confused’ by U.S. Probe of Greed Aid, Trade Group Says, BLOOMBERG( Oct. 27, 2010), http://www.bloom-berg.com/news/2010-10-27/chinese-government-confused-by-u-s- probe-of-green-aid-trade-group-says.html. 64 Eric Wesoff, MiaSole Sold to China’s Hanergy for $30 Million, GREENTECH MEDIA (Sept. 29, 2012), http://www.greentechmedia.com/articles/read/MiaSol-Sold-to-Chinas-Hanergy-For-30-Million 65 Keith Bradsher, Glut of Solar Panels Poses a New Threat to China, N.Y. TIMES (Oct. 5, 2012), http://www.nytimes.com/2012/10/05/business/global/glut-of-solar-panels-is-a-new-test-for- china.html?pagewanted=all 66 Preliminary Findings, supra note 37. 67 REL, supra note 49. 68 Id.

14 countries.69 FITs set the price of renewable energy to be purchased by utilities, offering renewable energy installations a fixed price for their product and allowing them to profit as they become more efficient.70 In effect, these two provisions of REL designate a buyer and a price for new projects, thus assuring the government’s investment will lead to domestic deployment.

2. Ongoing Development under China’s Plan

The current system in China is not without flaws. Along with the trade war, overcapacity issues and problems with transmission have slowed the process of curtailing the reliance on coal.71 China leads global manufacturing of CSPV cells and modules, producing more than forty percent of the world’s volume.72 The recent success is due largely in part to the low cost base of the Chinese solar manufacturers resulting from the loan and land provisions under the REL.73

However, this cheap capital has oversaturated the market, hurting profit margins and forcing some companies into insolvency.74 For example, Suntech, a company listed as a main respondent in the ITC action, recently received $31.7 million from the local government as emergency funding to respond to global oversupply and U.S. countervailing duties.75 Further, China is not completely developed and only its massive cities are able to take full advantage of new solar sources. The rural population remains unconnected and coal plants are still being built to supply

69 Id. 70 See, e.g., Lincoln L. Davies, Incentivizing Renewable Energy Deployment: Renewable Portfolio Standards and Feed-In Tariffs, 1 KLRI JOURNAL OF LAW AND LEGISLATION 40, Korea Legislation Research Institute (2011) (Explanation of how RPS and FITs work best in tandem). 71 Keith Bradsher, Glut of Solar Panels Poses a New Threat to China, N.Y. TIMES(Oct. 12, 2012), www.nytimes.com/2012/10/05/business/global/glut-of-solar-panels-is-a-new-test-for-china.html?pagewanted=all. 72 Global Market Outlook for Photovoltaics Until 2014: May 2010 Update, Eur. Photovoltaic Industry Ass’n, at 22 (May 15, 2010), http://www.epia.org/publications/archives/archives-publications.html?tx_felogin_pi1[forgot]=1. 73 Keith Bradsher, China Benefits as U.S. Solar Industry Withers, N.Y. TIMES, Sept. 1, 2011, http://www.nytimes.com/2011/09/02/business/global/us-solar-company-bankruptcies-a-boon-for-china.html?_r=0. 74 Bradsher, supra note 62. 75 Pete Dank, Chinese Solar Giant Suntech Gets a Bailout, EARTH TECHLING (Oct. 1, 2012), http://www.earthtechling.com/2012/10/chinese-solar-giant-suntech-gets-a-bailout/.

15 them with energy.76 China has become a “paradox,” being the world’s leader in alternative energy production and its leading emitter of CO2, simultaneously the “greenest and the blackest place on earth.” 77

B. The United States’ Renewable Efforts: Afraid of Commitment

In contrast to China’s stated goals and continual financial support, the U.S. effort to promote renewable energy deployment is riddled with inconsistencies. Similar to the REL 2006, the America Recovery and Reinvestment Act of 2009 (ARRA) outlined $27.2 billion dollars to be invested in research and development of renewable energy and provides a starting point for comparison.78 The ARRA worked in conjunction with previous renewable energy subsidies in the Energy Independence and Security Act of 200779 (EISA) and Energy Policy Act of 200580

(EPA 2005). Similar to China’s state guaranteed loans, the ARRA set aside $6 billion for the

Department of Energy to grant loans to renewable energy products.81 Unfortunately, solar manufacturer Solyndra’s $528 million loan and subsequent bankruptcy has brought harsh partisan criticism of the program and left a black eye on the Obama administration’s green energy policy.82

The ARRA allocated $13 billion to the Renewable Energy Production Tax Credit, a provision that was extended under EPA 2005 until 2014.83 The extension offers a tax credit to renewable energy companies in an amount determined by the actual electrical output from

76 Christina Larson, China Confronts Global Warming Dilemma, CHRISTIAN SCI. MONITOR (Nov. 12, 2009), http://www.csmonitor.com/Environment/Global-Warming/2009/1112/china-confronts-global-warming-dilemma (Citing Barbara Finamore of the National Resources Defense Council). 77 Christina Larson, The Great Paradox of China: Green Energy and Black Skies, YALE ENV’T 360 (Aug. 17, 2009), http://e360.yale.edu/content/feature.msp?id=2180. 78 America Recovery and Reinvestment Act of 2009, H.R. Con. Res. 1, 111th Cong. (2009) (enacted), available at http://www.recovery.gov/About/Pages/The_Act.aspx [Hereinafter “ARRA”]. 79 Energy Independence and Security Act of 2007, 42 U.S.C.A. § 17001. 80 Energy Policy Act of 2005, 42 U.S.C.A. § 15811. 81 ARRA, supra note 69. 82 See, e.g., Nick Juliano, House to Vote on ‘No More Solyndras’ Bill, E&E NEWS (Sept. 10, 2012), http://www.eenews.net.www2.lib.ku.edu:2048/EEDaily/2012/09/10/archive/4?terms=Solyndra. 83 Electricity Produced from Certain Renewable Resources, etc., 26 U.S.C.A. §45 (West).

16 renewables. In what could be seen as support for this initiative, Title IV of the ARRA outlined the use of $4.5 billion to modernize the electric grid and energy infrastructure.84 Since the U.S. does not face the same infrastructure problems as China, such a figure is not dispositive.

However, the production tax credit is still a valuable incentive for existing solar energy producers.

The failed Waxman-Markey Bill, also known as the American Clean Energy and Security

Act of 2009 (ACESA), provided further support to renewables but died from serious partisan fracture.85 The Bill sought to lower the cost of energy from renewables, implement a cap and trade program for carbon emissions, enact a national RPS, and spend roughly $150 billion on cleaning up U.S. energy sector.86 Supporters of the Bill estimated a net increase of 1.7 million jobs in transitioning to clean energy.87 The failure of the ACESA on the Senate floor leaves clean energy with limited federal incentives. The most effective U.S. policies remaining are the 1603 cash grant program, investment and production tax credits.

1. Expiring efforts: 1603 Cash Grant and Investment Tax Credit

Within the ARRA’s provisions, section 1603 grants for specified energy property in lieu of tax credits provided the greatest benefit to emerging players in the industry. An SEIA official called the program “the single most effective policy driving renewable energy growth during the past two years.”88 The purpose of 1603 was to reimburse eligible applicants for a portion of the cost of installing specific energy property used in a trade or business.89 Where an investment tax

84 42 U.S.C.A. § 16516 (2009). 85 American Clean Energy and Security Act of 2009, H.R. 2454 111th Cong.(2009), available at http://www.govtrack.us/congress/bills/111/hr2454. 86 Robert Pollin et al., The Economic Benefits of Investing in Clean Energy: How the Economic Stimulus Program and New Legislation Can Boost U.S. Economic Growth and Employment 1, at 29 (2009). 87 Id. at 23. 88 John McArdle, Trade Group Chairman Decries ‘Politicization of Energy’, E&E NEWS (Aug. 24, 2012), http://www.eenews.net/Greenwire/2012/08/24/archive/8?terms=John+McArdle 89 ARRA, supra note 78, Title I, Div. B § 1603.

17 credit offsets the tax imposed on profits from renewable energy investment for the taxable year by 30%, 1603 allowed taxpayers to elect to take an equivalent amount in cash. In practice, new solar companies have little profit in their first years of operation, making a credit less useful because there is little tax liability to offset.90 The 1603 grant reduced investment costs outright, and was thus extremely beneficial for new projects. Unfortunately, the deadline for new 1603 applications expired on October 1, 2012.91 While the provision awaits renewal, companies will be forced to utilize renewable energy tax credits still present in the tax code.

The Investment Tax Credit is still a useful tool in its own right as the 1603 program faces extinction. The provision allows a 30% tax credit for solar energy property installed through

2016.92 The DOE loans have come under partisan scrutiny largely because the government is playing the role of investor. The investment credit solves this problem to a certain extent, allowing the free market to make the investment and take the risk, not the federal government.

Yet, again, the credit is not as useful to a company with little or no profits, and is more effective as a tax equity financing strategy. To use the credit, companies with large taxable incomes partner with and invest in solar projects. As an example, Google’s recent investment of $94 million in California solar companies allowed them a 30% credit that will reduce their tax liability by roughly $31 million.93 However, solar firms who seek this type of financing are

90 Scott Fisher, et al., Tax Credits, Tax Equity and Alternatives to Spur Clean Energy Financing, U.S. Partnership for Renewable Energy Finance (2011), available at http://uspref.org/wp-content/uploads/2011/09/Tax-Credits-Tax- Equity-for-Clean-Energy-Financing.pdf. (Provides a useful explanation on the benefits of 1603 over investment tax credit, including a simple overview of tax equity financing). 91 H.R. 4853, 111th Cong. § 707 (2010) (Extended 1603 grants through 2012). 92 Energy Credit, 26 U.S.C.A. §48 (West). 93 See, e.g., Liz Hoffman, Tax Equity Financing Lures Corporations to Renewables, LAW360 (Mar. 6, 2012), http://www.law360.com/articles/294066/tax-equity-financing-lures-corporations-to-renewables

18 limited to only two-thirds of the credit benefit, and suffer burdens not associated with other forms of debt.94

In real terms, the expiration of 1603 and reliance on tax equity financing raises increases the cost of capital necessary to start a solar project. A higher cost of capital directly equates to a higher cost of electricity produced from a solar plant because of the way a tax equity partnership is arranged.95 A tax equity partner is not a bank, and the costs are higher than traditional interest paid on debt.96 Instead of interest, tax equity sources look to utilize depreciation deductions after the initial investment credit, denying a renewable project these tax incentives and preventing them from seeking other forms of debt.97 Tailoring a profitable business plan within this financing scheme is made all the more difficult with tariffs increasing the price of solar panels.

For proponents of renewable energy, now is the winter of discontent. The scarcity of tax equity funding and the inherent issues accompanying it suggest a reduction in the number of solar installations in the future.98 As companies strive to make a profit under these arrangements, they must charge a higher price if they are to avoid bankruptcy. If extensions of renewable energy policy continue dying in Congress, there is little to suggest the emerging solar industry will suffer a different fate.

2. Stalling the Market with Uncertainty

Although partisan issues in an election year are partially to blame, U.S. renewable energy law and policy is defined by its indecisiveness. Federal tax policy for renewables is inconsistently supportive, and in some years, many new projects come to fruition but the pipeline

94 Uday Varadarajan, et al., Climate Policy Initiative, Supporting Renewables while Saving Taxpayers Money, at 4 (Sept. 2012), available at http://climatepolicyinitiative.org/2012/09/18/supporting-renewables-while-saving- taxpayers-money/. 95 Fisher, supra note 90. 96 Id. at 2 (Cost of capital from traditional debt was assessed at 5.5%, while tax equity financing produced a cost of capital of 12-13%). 97 Id. at 3. 98 Id.

19 often dries up.99 In turn, national policies such as cap and trade schemes are criticized for imposing the higher cost of renewable energy on the population.100 However, cost-effectiveness is directly linked to the form of capital investment used by renewable energy companies, and federal policy largely determines the investment opportunities available. The production tax credit helps cut costs to end users, but uncertainty in extension of other tax incentives negates this effect as new projects are forced to accept more expensive forms of capital in a struggling economy. As Dean Gosselin explained to the Senate Finance Committee, “The unpredictable nature of the credit has prevented the needed investment in U.S.-based facilities that will drive the economies of scale and efficiencies.”101 The new ITC tariffs only compound this problem that prevents the free market from taking full advantage of what action the government has already taken. Ultimately, the current uncertainty undermines the effectiveness of tax incentives to develop a revenue stream necessary for renewable energy companies to become cost- competitive.

Further, the U.S. renewable energy policy must grapple with a lack of demand and continual federal support of fossil fuels. In this way, we are subsidizing the problem while attempting to rectify it. Thirty-six state RPS programs help create demand for renewable energy, but a uniform national program continually faces congressional deadlock.102 The ARRA was obviously focused on economic recovery, but includes provisions that support fossil fuel research alongside the green energy initiatives. Specifically, under Article IV, $3.4 billion was allocated for fossil

99 Candace Lombardi, U.S. Wind Energy Popular, but Lacks Investment, CNET (July 28, 2010), http://news.cnet.com/8301-11128_3-20011926-54.html. 100 See, e.g., Jay B. Wiley, Cap-and-Trade Spells Economic Disaster for America’s Poor, 12 SHOLAR 267, (2010) (arguing that the high cost of renewable energy is detrimental to end users, enhanced by a cap and trade program). 101 Clean Energy: From the Margins to the Mainstream: Hearings of the S. Finance Comm., 109th Cong. (2007) (Statement of Dean Gosselin, V.P. of Bus. Dev. For Wind Power, FPL Energy). 102 Lincoln L. Davies, Power Forward: The Argument for a National RPS, 42 CONN. L. REV. 1339,1341 (2010).

20 energy research and development.103 This represents a global trend, where on average governments around the world spend $43 billion a year on renewable energy subsidies, while fossil fuels received $557 billion in 2009 alone.104 In addition, the U.S. tax code has provided a depletion allowance for oil and gas wells105 and a domestic production activities subsidy.106

These subsidies have been in place since the adoption of the code in 1913, and have contributed to the development of the expansive fossil fuel industry in America.

C. Comparison

While the U.S. strikes red lines through legislation in support of the renewable energy industry, China signs its initiatives in green ink. Along with the loans and bailouts previously mentioned, China is investing $44 billion in ultra-high-voltage transmission lines to facilitate dispersion of energy from renewables,107 and successfully increased the State Grid’s capacity for solar by 400 percent.108 Such growth is an example of the current focus on domestic deployment, an action consistent with the Medium and Long-Term Plan’s goal of fostering both supply and demand in the renewable industry. It is important to note, however, that China remains as committed as the U.S. to spending on fossil fuels. 109 Although the U.S. still makes loans to solar start-ups,110 there is a notable lack of demand creating provisions like those under China’s REL.

Oddly enough, in 2011, the U.S. Export-Import Bank approved $176.4 million in loans for six

103 ARRA, supra note 78. 104 Zachary Shahan, Fossil Fuels Get Tons more in Subsidies than Renewable Energy, CLEAN TECHNICA (July 31, 2010), http://cleantechnica.com/2010/07/31/fossil-fuels-get-tons-more-in-subsidies-than-renewable-energy/ (Citing figures from a 2010 Bloomberg New Energy Finance report). 105 26 U.S.C. §611(a) (2006). 106 I.R.C. §199 (2006). 107Clean Energy Jobs and American Power Act: Hearing on S. 1733 Before the S. Comm. On Env’t and Pub. Works, 111th Congress (2009) (Statement of Steven Chu, Secretary of Energy). 108 Pete Danko, PV Power to China’s State Grid Rockets Upward, GREENTECH MEDIA (Nov. 6, 2012), http://www.greentechmedia.com/articles/read/pv-power-to-china-state-grid-rockets-upward. 109 See, e.g., Todd Woody, The Next Great Leap Forward: China Powers the Global Green Tech Revolution, GRIST (Jan. 1, 2010), http://www.grist.org/article/2010-01-11-china-powers-global-green-tech-revolution. 110 See, e.g., Nichola Groom, U.S. Poised to Hand Over $197 Million to Another Solar Panel Start-up, REUTERS (Sept. 24, 2012), http://in.reuters.com/article/2012/09/24/us-usa-solar-solopower-idINBRE88N04V20120924

21 Indian solar power projects to import panels and construction services.111 This effectively buys demand for U.S. companies, but does not consider the potential of a federal RPS standard to increase domestic demand.112 China’s similar measures under REL that require utilities to purchase electricity from renewable sources have encountered problems, but have been reworked to be more effective.113 In comparison, Congress continues to dodge the problem as domestic companies are forced to compete with China’s cheap manufacturing costs.114 Further, unlike their Chinese counterparts, U.S. banks are not encouraged to offer preferential loan treatment to renewable energy projects. Ultimately, U.S. policy cannot capitalize on market forces because of the restraints imposed on new market players by investment uncertainty and high cost of capital.

The ITC antidumping case is a result of two renewable energy policies colliding in the free market. China passed the REL and spent the money to become the world’s leader in CSPV cell production. This growth was artificial to a certain extent, causing the supply curve to rocket upward while domestic demand limped along. The excess crossed the Pacific and entered a solar market in the U.S. eager to spend the government’s 1603 cash. Imports reach multi-billion dollar levels; calamity ensues. The domestic industry fractures between manufacturers and installers, and a complaint is filed. Duties are imposed as subsidies expire and investment withers. China’s policy becomes the scapegoat, when in reality the U.S. failed to establish a competitive game plan. In fact, blaming China deflects attention from the U.S.’s own inabilities to develop

111 Obiko Pearson, U.S. Will Loan $18.9 Million for SolarWorld Exports to India, BLOOMBERG (Nov. 22, 2011), http://www.bloomberg.com/news/2011-11-22/u-s-will-loan-18-9-million-for-solarworld-exports-to-india.html. 112 See, e.g., American Tradition Institute, The Effects of Federal Renewable Portfolio Standard Legislation on the U.S. Economy, ATI (Jan. 28, 2011), http://www.atinstitute.org/the-effects-of-federal-renewable-portfolio-standard- legislation-on-the-u-s-economy/. 113 2009 REL Amendment, supra note 53. 114 Sato, supra note 4, at 464 (Sato discusses the difficulties of competing with Chinese dominance in cheap labor manufacturing).

22 progressive policies on renewable and climate change.115 The expiration of 1603 and imposition of tariffs exemplify the uncertain and ad hoc support given to the U.S. solar industry.

Threatening clouds are developing over the domestic market, and the federal government must take action to ensure its solar industry weathers the storm. Unfortunately, if we are unable to rectify our own failures, the forecast for the future will continue to be bleak.

III. The Emerging Market and Policy Recommendations

The ongoing trade actions between countries threaten more than the profitability of domestic industries. Instead, antidumping duties threaten to break the already fragile lines of trade between countries whose cooperation is a necessary prerequisite to a global response to climate change. As Bruce Stokes points out, the inherent conflict between nations’ climate needs and their competitiveness agendas threatens the global trading system, which lacks adequate rules and procedures on energy issues.116 The imposition of tariffs is the first example of the debilitating effects of trade disputes on a unified effort. Notably, these trade actions stand as a barrier to the UNFCCC Durban Conference’s stated goal of “The widest possible cooperation by all counties and participation in an effective and appropriate international response.”117 Putting pen to paper and getting countries to agree on such a response remains a difficult and prolonged process. Years of trade friction may be required to convince governments of the desirability of an international agreement that will foster the goal laid out in Durban.118 However, simply labeling tariffs as growing pains necessary to light a fire under Congress underscores the benefits of taking proactive measures. Taking note of China’s success in creating a thriving solar industry,

115 Joel B. Eisen, China’s Greentech Programs and the USTR Investigation, 11 SUSTAINABLE DEV. L. & POL'Y 3, at 6 (2011). 116 Bruce Stokes, Emerging Green Technology Poses Threat of Trade Wars, YALE GLOBAL ONLINE (May 14, 2010) http://yaleglobal.yale.edu/content/emerging-green-technology-poses-threat-trade-wars. 117 UNFCCC, Report of the Conference of the Parties on its seventeenth session, held in Durban from 28 November to 11 December 2011, at 2 (Mar. 15, 2012), available at, unfccc.int/resource/docs/2011/cop17/eng/09a01.pdf. 118 Stokes, supra note 104.

23 the U.S. should proceed with market-based incentives to increase demand in renewables while decreasing the appeal of fossil fuels. If such policies are adopted, the benefits will not only bring opportunity in the emerging solar industry, but will advance the goals outlined in Durban.

This section begins by introducing the problem of tariff sprawl occurring across the global economy to give context to the antidumping duties. A general policy argument focusing on cooperation between nations and the benefits accompanying such an approach will follow.

Finally, with the ITC case in the background, the section proposes a combination of tax measures and federal policy as an effective market-based response to climate change.

A. Avoiding Tariff Sprawl

SolarWorld’s successful claim comes in the midst of a larger tariff sprawl developing throughout the world economy. Tariff sprawl appropriately explains how trade disputes and tariffs in one industry in one country permeate into the relations between other industries and other countries. The phenomenon is to be expected in light of a global economy growing more interconnected. Tariff sprawl may be beneficial as companies consider appropriate actions to remain competitive in the global market. Such considerations are especially relevant to governments faced with complaints of unfair practices in one industry because a response may inadvertently burden another industry. Jigar Shah, chairman and co-founder of the Coalition for

Affordable Solar Energy (CASE) commented on how the ITC’s decision played into the bigger picture, stating “Unilateral tariffs and a trade war in today’s interconnected global marketplace are unnecessary and detrimental to effective and efficient business competition.”119 Given the

119 Quoted from Wesoff, supra note 53. See also, Christian Roselund, Leveling the Playing Field, SOLARSERVER (2012), http://www.solarserver.com/solar-magazine/solar-interviews/solar-interviews/leveling-the-playing-field-an- interview-with-case-chair-and-co-founder-jigar-shah-on-the-solarworld-trade-case-the-advantages-of-low-cost- modules-and-national-policy.html (Interview with Shah on tariff remedies).

24 key role renewable energy plays in responding to climate change, avoiding tariff sprawl is all the more important for successful global mitigation efforts.

Unfortunately, the current situation reflects the exact opposite. Current examples of sprawl are not hard to come by. SolarWorld has taken its complaint to the E.U., filing a virtually identical complaint with the European Commission, the E.U.’s lead trade body, in July 2012.120

In a different industry, the U.S. has filed an antidumping claim for automotive imports with the

WTO, and China has filed a countersuit over the same issue.121 In October, 2010, the United

States Trade Representative, (USTR), initiated an investigation under Section 301 of the 1974

Trade Act with respect to acts, policies and practices of the Government of China affecting trade and investment in green technologies.122 The investigation responded to a petition filed on behalf of the United Steelworkers alleging that China violated World Trade Organization (WTO) policies that unfairly support its domestic producers of wind and solar products, among other goods.123 Although the United Steelworkers petition is outside the scope of this article, it conclusion parallels the main thrust of each complaint. Specifically, the Chinese government has invested hundreds of billions of dollars in policies providing an unfair advantage to its producers and exporters, undercutting U.S. producers and workers and distorting world trade.124

China’s complaints in response are accompanied with accusations. It labels the ITC and

USTR investigations as examples of American protectionism that could undermine the global

120 Eric Wesoff, Updated: Europe Gets Its Own Solar Trade War with China, GREENTECH MEDIA (July 25, 2012), http://www.greentechmedia.com/articles/read/Europe-Gets-its-Own-Solar-Trade-War-/. 121 James Politi, U.S. Launches WTO Action Against China, FINANCIAL TIMES (Sept. 17, 2012), http://www.ft.com/intl/cms/s/0/90df8058-0078-11e2-831d-00144feabdc0.html#axzz28Mxkraqq. 122 United States Launches Section 301 Investigation into China’s Policies Affecting Trade and Investment in Green Technologies, Off. U.S. Trade Representative (Oct. 15, 2010), http://www.ustr.gov/node/6223. 123 Id. 124 Petition on China’s Policies Affecting Trade and Investment in Green Technology, Off. U.S. Trade Representative (filed Sept. 9, 2010), http://www.ustr.gov/trade-topics/enforcement/pending-section-301-petitions.

25 economy and harm international efforts to combat global warming.125 The country countered

SolarWorld’s E.U. complaint with an action through the WTO alleging the E.U. and member states gave added and illegal subsidies to solar PV projects.126

Tariff sprawl is a serious issue moving forward with market-based approaches to mitigating climate change. If the U.S. continues to challenge China’s efforts with tariffs, there may be reductions in Chinese imports, not just in the solar industry.127 With tariffs weighing heavy on already weak trade relations and subsidies facing uncertain futures, the U.S. must take action to protect its solar industry. The implications are more than monetary, as failure by either the U.S. or China to reduce emissions would imperil the entire global effort.128

B. Live and Let Live

Continuing to take an adversarial stance on China’s measures fails to address the nature of the global market. The war analogy is infused in political discourse, as Robert F. Kennedy Jr. described the energy technology competition between China and the U.S. as an “arms race.”129

In a way green technologies may be the “new Sputnik.”130 Even President Obama has referred to

America’s pressing energy challenges as the “nation’s Sputnik moment.”131 Still, allowing such a mentality to pervade the legislative process undermines the ultimate goal of reducing the

125 Keith Bradsher, China Charges Protectionism in Call for Solar Panel Tariffs, N.Y. TIMES (Oct. 21, 2012), http://www.nytimes.com/2011/10/22/business/global/china-warns-of-bad-effects-if-us-turns- protectionist.html?pagewanted=all&_moc.semityn.www&_r=0. 126 Pete Danko, China Ratchets Up Solar Dispute with WTO Claim, GREENTECH MEDIA (Nov. 8, 2012), http://www.greentechmedia.com/articles/read/china-ratchets-up-solar-dispute-with-wto-claim 127 Keith Bradsher, For Solar Panel Industry, a Volley of Trade Cases, N.Y. TIMES (Oct. 11, 2012), http://www.nytimes.com/2012/10/12/business/global/us-places-tariffs-on-imports-of-chinese-solar- panels.html?_r=1&ref=business. 128 Eisen, supra note 115, at 8. 129 Robert F. Kennedy, Jr., The New Arms Race, HUFFINGTON POST (Nov. 19, 2009, 3:11PM), http://www.huffingtonpost.com/robert-f-kennedy-jr/the-new-arms-race_b_364211.html 130 Thomas Friedman, The New Sputnik, N.Y. TIMES (Sept. 26, 2009), http://www.nytimes.com/2009/09/27/opinion/27friedman.html?_r=0 (considering China’s green measures as a threat to U.S. in the future, equating the country’s green production to the Middle East’s oil control). 131 Press Release, Barack Obama, President of the U.S., Remarks by the President in State of the Union Address (Jan. 25, 2011), http:// www.whitehouse.gov/the-press-office/2011/01/25/remarks-president-state-union-address (last visited Nov. 20, 2012).

26 emissions of both countries. Professor Joel Eisen properly points out that given our nation’s pressing needs to address climate change, it would be much more productive to forego the rhetoric of the greentech war and support both nations’ greentech initiatives.132 We made it to the moon on our own, but tackling the sun will take a combined effort.

To understand the benefits of cooperation, it is necessary to see the solar industry as a process of design, manufacturing, assembly, and installation. China is the world’s leader in

CSPV manufacturing133 for the same reasons it continues to be the leading producer of other factory-built commodities. Lower wages, lower land prices, fewer regulatory requirements all contribute to China’s success in CSPV production, but there is a notable lack of innovation.134

American companies still lead the world in developing new technologies, holding the top ten patents worldwide in solar technology.135 Our two economies are interdependent, not independent competitors.136 Realizing this relationship suggests future partnerships between the

U.S. and China need not be a zero-sum game.137 There is a win-win scenario in the solar industry where China lowers the cost of low-tech parts of the value chain, growing the market for the higher-tech parts handled by the United States.138

Apart from manufacturing, solar installation remains an inherently domestic industry with opportunities for projects abroad. Although antidumping duties may help domestic manufacturers compete with subsidized prices, they harm other parts of the solar chain.

132 Eisen, supra, note 115, at 2. 133 Global Market Outlook, supra note 72 at 24. 134 Christina Larson, America’s Unfounded Fears of a Green-Tech Race with China, YALE ENV’T 360 (Feb. 8, 2010), http://e360.yale.edu/feature/americas_unfounded_fears_of_a_green-tech_race_with_china/2238/. 135 Arnaud de la Tour, et al., , Innovation and International Technology Transfer: The Case of the Chinese Photovoltaic Industry (MINES ParisTech, Cerna Working Paper Series, Working Paper No. 2010-12), http://hal.archives-ouvertes.fr/docs/00/49/85/78/PDF/CERNA_WP_2010-12.pdf. 136 Julian L. Wong, The Challenge of China’s Green Technology Policy and Ohio’s Response: Written Testimony Before the U.S.-China Economic and Security Review Commission, CTR. FOR AM. PROGRESS ACTION FUND 9 (July 14, 2010), http://www.uscc.gov/sites/default/files/7.14.10Wong.pdf 137 Larson, supra note 134. 138 Michael Levi, The Downside to Made in the USA, Council on Foreign Relations (Sept. 9, 2010), http://blogs.cfr.org/levi/2010/09/09/the-downside-to-made-in-the-usa/.

27 Respondents to the ITC action included many larger installers and distributors due to their importation of Chinese products.139 These installers thrived with China covering part of the cost to domestic purchasers, allowing them to become more efficient and even reduce the cost of solar energy. In addition, China seeks to boost its domestic deployment and American companies like First Solar are responding to this demand.140 Ironically, this venture was cited in the USTR investigation141as an impermissible agreement to support China’s domestic industry.

Struggling against the symbiotic relationship between the two countries is a much a global concern as a financial one. The UNFCCC’s decisions are focused on cooperation, and surprisingly the U.S. and China have started to play nice.142 Both countries have pledged several times to take mutual action to address climate change at the Pittsburg G-20 Summit143 and the

Major Economies Forum on Energy and Climate.144 Starting a trade war over the instruments necessary to mitigate climate change undercuts the progress achieved by these meetings.145

Given these concerns, strong incentives for renewable energy projects are necessary to keep the

U.S. industry alive and competitive in the global market.146

C. Adopting Competitive Measures

SolarWorld’s claim highlights the power government possesses in creating industry through subsidies and incentives. Market-based approaches utilize market forces to reduce carbon dioxide emissions by subsidizing the production and incentivizing the demand of

139 ITC Preliminary Findings, supra note 31. 140 First Solar and Ordos Take Key Step Forward in 2GW China Project: Cooperation Framework Agreement Signed During China-US Presidential Summit, FIRST SOLAR (Nov. 17, 2009), http://investor.firstsolar.com/phoenix.zhtml?c=201491&p=irol-newsArticle&ID=1356152&highlight=. 141 USTR Petition, supra note 124. 142 See, e.g., Michael Wines, In China, Pelosi Calls for Cooperation on Climate, N.Y. TIMES (May 28,2009), http://www.nytimes.com/2009/05/28/worl/asia/28pelosi.html. 143 See Leader’s Statement: The Pittsburgh Summit, Pittsburgh Summit, http://www.pittsburghsummit.gov/mediacenter/129639.htm (last visited Oct. 13, 2012). 144 See Major Economies Forum on Energy and Climate, U.S. DEP’T. OF STATE, http://www.state.gov/e/oes/climate/mem/index.htm (last visited Oct. 13, 2012). 145 Eisen, supra note 115, at 7. 146 Sato, supra note 4, at 465.

28 renewable energy. Such an approach is favorable when compared with more complex regulatory schemes that face litigation delays such as those under the Clean Air Act.147 In addition, the economic benefits from a thriving industry benefit the country as a whole.148 For example, even in the midst of the tariff dispute, solar industry employment increased by 13.2 percent from

September 2011 to September 2012, bringing the total job count to just over 119,000.149

However, the current, business-as-usual approach in the U.S. is inadequate, and must be amended to reap the trifecta of environmental, economic and energy security rewards awaiting the victor of the renewables race.150 The 1603 cash grant program is an example of a successful use of market forces, but the instability of such provisions dissuades investment. Any proposed market-based solution must take into account both supply and demand. Solar energy has impressive potential,151and can compete with fossil fuels with firm policy support.152 As

Professor Felix Mormann argues and this section highlights, these policies should be designed with an investor’s perspective in mind.153 This section combines fossil fuel subsidy repeal, extension of renewable energy subsidies, and a carbon tax or federal RPS to provide a market- based policy framework within which the domestic solar industry may thrive.

1. Repealing Fossil Fuel Subsidies

147 Reuven S. Avi-Yonah, David M. Uhlmann, Combating Global Climate Change: Why A Carbon Tax Is A Better Response to Global Warming Than Cap and Trade, 28 STAN. ENVTL. L.J. 3, 29 (2009). 148 Pollin, supra note 86. 149 Kate Valentine, U.S. Solar Jobs Grow by 13 Percent in 2012, Far Outpacing the Broader Economy, THINKPROGRESS (Nov. 5, 2012), http://thinkprogress.org/climate/2012/11/05/1139081/us-solar-jobs-grow-by-13- percent-far-outpacing-the-broader-economy/?mobile=nc (Citing preliminary figures from the nonprofit Solar Foundation). 150 Felix Mormann, Enhancing the Investor Appeal of Renewable Energy, 42 ENVTL. L. 681, 686 (2012). 151 U.S. Dep’t. of Energy, supra note 1. 152 Nathan Mee, Marc Miller, Here Comes the Sun: Solar Power Parity with Fossil Fuels, 36 WM. & MARY ENVTL. L. & POL'Y REV. 119 (2011). 153 Mormann, supra note 150, at 704.

29 Repealing or reducing fossil fuel subsidies, mainly the depletion subsidy,154 would begin the process of shifting federal support in favor of renewable energy. This move is not as outlandish as it seems, and has been done in the past to the benefit of renewables. The

Emergency Economic Stabilization Act of 2008 extended the PTC and repealed more than $17 billion in tax subsidies to the oil and natural gas industries to pay for the extended provision.155

Funding alternative energy programs such as section 1603, investment and production tax credits with the revenues saved from these repeals is more than just a nifty accounting measure. It effectively shifts where U.S. allegiances lie, and ties progress in renewable energy to a toll charge for some of the negative consequences that accompany petroleum operations.156 Subsides were integral in creating domestic fossil fuel industries and will play the same inherent role in promoting renewables. If the U.S. is serious about a market-based approach, cleaning up the tax structure in favor of renewable development offers both an idealistic and monetarily efficient starting point. Also, repealing these measures may face less political scrutiny when compared with a carbon tax advocated later in this section.

2. Extending Section 1603

How companies receive money from investors directly impacts the ultimate cost of solar electricity, and must be considered in balancing government spending on solar subsidies. The previous discussion on section 1603 outlined how the presence of certain incentives affects cost of capital and determines market participation. Without 1603, new solar installations have to rely on tax equity financing that can negatively impact the cost of electricity by as much as 30%.157

154 Depletion Subsidy, supra note 105. 155 12 U.S.C. § 5201 et. Seq.; See also, Fred Sissine, CRS Report, Renewable Energy: Background and Issues for the 110th Congress 24 (2008). 156John A. Bogdanski, Reflections on the Environmental Impacts of Federal Tax Subsidies for Oil, Gas, and Timber Production, 15 LEWIS & CLARK L. REV. 323, 336 (2011). 157 Supporting Renewables, supra note 94, at 11.

30 Electricity costs are one determining factor, but so is the cost to the government. In light of its success, the 1603 program had much higher overall costs to government than initial expectations, but its finite nature makes it is less expensive relative to the production tax credit.158 In the absence of preferential loans like those offered China, cutting the cost of capital means cutting the cost of electricity produced from solar projects.

Some combination of tax incentives must be used in order to recognize both the growth during 1603 and reduce the cost of renewable energy. The Climate Policy Initiative’s Report suggests a 20% 1603 cash grant in lieu of the 30% investment tax credit would increase the value of the incentive to the project while reducing the cost to the government of providing it.159 Direct cash subsidies like 1603 cuts the cost of deployment in half when factoring in tax equity financing costs.160 For example, from 2005 to 2008, tax credits of $10.3 billion produced 19

(GW) of wind energy capacity, when direct subsidies could have achieved the same for approximately $5 billion.161 Specific figures are debatable, but the revising the tax code has the benefit of flexibility and can be reworked if the market response is unfavorable.

3. Carbon Tax and Federal RPS

A carbon tax and/or federal RPS offer corollaries to the tax incentives that help ignite demand for renewable energy. Many economists believe a carbon tax is the most effective method of reducing carbon dioxide emissions thanks to their simplicity, adaptability and ability to generate revenue.162 Such a tax would be based on the marginal cost of carbon dioxide emissions and imposed on all oil, coal and natural gas production in the U.S., as well as from

158 Id. 159 Id. at 27. 160 Bipartisan Pol’y Ctr., Reassessing Renewable Energy Subsidies – Issue Brief 6, 13 (2011), available at http://bipartisanpolicy.org/sites/default/files/BPC_RE%20Issue%20Brief_3-22.pdf. 161 Id. 162 See, e.g., N. Gregory Mankiw, One Answer to Global Warming: A New Tax, N.Y. TIMES (Sept. 16, 2007).

31 imports.163 The tax could be easily adjusted to respond to market indicators, and its revenues could support research in renewables or help pay for other tax incentives.164 A paper by the

Brookings Institution suggests a tax of $20 per ton of carbon dioxide would generate $150 billion a year, with $30 billion going to clean energy investment and the remaining $120 billion to help reduce the deficit.165 Although the immediate response for many is to denounce any new tax, taxing carbon dioxide at its source increases investor appeal for renewable energy projects, thereby strengthening U.S. renewable energy innovation in the global market.166 However applied, a carbon tax would help create a competitive domestic industry by raising revenue and investment, largely solving the problems within the current scheme.167

A federal RPS could be used in conjunction with tax policies to increase demand and ultimately make the domestic market globally competitive. Such a scheme would place a federal quota on the amount of electricity to be produced from renewables, increasing the demand for technologies like solar as utilities seek to meet the standard. The power of a federal RPS is that it creates demand that stimulates investment by guaranteeing a buyer for the subsidized energy produced.168 Investment tax credits or 1603 grants would help ease the burden by reducing the cost of installing new technologies. A national RPS also extends beyond state borders, increasing the market size for renewables and boosting renewable energy production.169 The production tax credit will allow energy companies to offset future tax liability with the credits earned. Thus, a

163 Avi-Yonah, et al., supra note 147, at 32. 164 Id. 165 Mark Muro & Jonathan Rothwell, Cut to Invest: Institute a Modest Carbon Tax to Reduce Carbon Emissions, Finance Clean Energy Technology Development, Cut Taxes and Reduce the Deficit, BROOKINGS INSTITUTE, 4 (Nov. 2012). 166 Matthew Stepp & Robert Atkinson, An Innovation Carbon Price: Spurring Clean Energy Innovation while Advancing U.S. Competitiveness, INFO. TECH. & INNOVATION FOUND. 1, 18 (Mar. 2011). 167 Id. at 3. 168 Christopher Riti, Three Sheets to the Wind: The Renewable Energy Production Tax Credit, Congressional Political Posturing, and an Unsustainable Energy Policy, 27 PACE ENVTL. L. REV. 783, 817 (2010). 169 Davies, supra note 102, at 1367.

32 well-crafted national RPS maximizes the benefits of tax policy while minimizing the costs imposed by the quota requirement.170

Taken together, these actions resemble some of the key measures employed by China on its campaign for clean energy dominance. Renewing tax incentives increases investor certainty in the U.S., bolstered with the demand certainty inherent in a national RPS.171 Certainty also helps lower the cost of capital for new projects, helping to solidify profits and provide a consistent return on initial investments.172 Stronger market players in this area will reduce the cost of clean energy deployment by achieving economies of scale. Reducing financial support to fossil fuels, or taxing them outright, helps ease the monetary burden imposed in subsidizing any new industry.

Federal energy standards relieve the fiscal pressure by creating a demand for clean energy that companies can fulfill, in turn producing more tax revenue as their profits increase. With a strong domestic industry, the U.S. will be better positioned to capitalize on the economic relationship with China. If the U.S. employs comprehensive measures that focus on the strengths of its industry, the future of the solar industry can expect sunny skies for years to come.

CONCLUSION

The Solar Trade War has not ended in tragedy, at least not yet. Such a skirmish is to be expected as countries compete for the spoils from combating climate change. However, the

ITC’s decision proves that the U.S. has not adequately outfitted its solar industry. Doing so is all the more important as tariff sprawl threatens to harm other industries and undermine global efforts to reduce carbon dioxide emissions. The good news is that the U.S. already possesses the policy tools necessary to build a more competitive solar industry. A comprehensive market-

170 Id. at 1389. 171 Mormann, supra note 150, at 712. 172 Id.

33 based approach, built from the rubble of past failures, promises a response to climate change powered and paid for by the sun’s rays.