Anti-dumping and Safeguard Duties on Solar Panels Hits Installation in US

The Numbers: Solar power as share of U.S. electricity generation

2050: 22%*

2021: 4%

2010: 1%

* “Annual Energy Outlook 2022”, Energy Information Administration, reference case, assuming no major change in policy or external environment.

What They Mean:

A cautionary tale, unfolding this spring in the American solar power industry, as hopes of “de-carbonization” in electricity begin to clash with an “industrial strategy” meant to promote photovoltaic manufacturing in part through reliance on tariffs, and a recently booming U.S. solar power-generation industry suddenly begins to fade.

“De-carbonization”: One of the Biden administration’s top-tier climate policy goals is to use less coal and other greenhouse gas-producing hydrocarbons, and use more alternative energy sources, to generate electricity. Solar power, a core element of this effort, provided about 4 percent of U.S. electricity in 2021, up from less than 1 percent a decade ago. With a battery of tax incentives, government purchases, and other policy tools in place, U.S. homes, buildings, and utilities added 23.6 gigawatts of solar capacity - just under half of all new U.S. electricity generation – last year. The Energy Department’s yearly “Annual Energy Outlook”, released in March, predicts that all else equal, the solar share of U.S. electricity will reach about 10% in 2030 and 22% – in practical terms, about 1,000 gigawatts of a total just above 5,000 gigawatts – by 2050.

“Industrial strategy”: Meanwhile, the administration also hopes to use U.S. government policy tools to help make the U.S. a large producer of (among many new products) the actual photovoltaic cells, modules, and panels that turn the sun’s light and heat into electricity. Most of these are now made in and imported from Asia, where rapidly growing capacity has helped to drive down solar panel prices by about 90% over the past decade. China makes about 70% of the world’s output, Southeast Asia 15%, and Korea 5%. The U.S. is at about 3% of world production – a small fraction of world output, but not a trivial total, which translates to about 7.5 gigawatts of electricity, or about a third of annual U.S. solar power installation. A series of trade law complaints from U.S. manufacturers over the past decade have tried to shift this balance through appeals for tariffs. The outcomes have been equivocal to date; the newest such effort, however – an ‘anti-dumping’ case filed by a small California company – may be enough to set back actual American use of solar power for years. To review -

(1) The normal (“MFN”) tariff on photovoltaic cells, modules, and panels is zero. Beginning in 2012 and 2014, “anti-dumping” and “countervailing duty” suits have imposed tariffs on Chinese-made photovoltaic cells and modules in a range (depending on the company) of 13.3% to 249.95%. These laws are deliberately depoliticized, with litigation handled by civil servants, and currently oversee “orders” (i.e. tariffs) on 644 products (mostly steel) to offset respectively unfairly low pricing and subsidies defined by the intricate terms of the two laws’ 1994 revision. Cabinet officers, presidents, and similar individuals have little ability to change these decisions.

(2) As frequently happens with tariffs, however, the main effect of the 2012 and 2014 decisions seems to have been to shift buyers’ orders a bit south, particularly to Malaysia, Vietnam, Thailand, and most recently Cambodia. A second suit led the Trump administration in 2018 to impose a complex four-year global “safeguard” tariff lasting for four years, beginning at 30% and scaling down to 15% in 2021, and applied when solar panel imports rose about 2.5 gigawatts. Known as “Section 201” in trade-bar jargon, the safeguard contrasts with the anti-dumping and countervailing duty laws, as it allows Presidents to set a wide variety of import management or restrictions, or alternatively to decline any action on grounds of larger national interest. The 2018 tariffs expired last February, and based on a recommendation from the International Trade Commission, the Biden administration decided (a) to extend the safeguard for four years, but (b) raised the duty-free level to 5 gigawatts – more or less the current level of cell and module imports – and eliminated tariffs on the “bifacial” panels especially popular with utilities.

(3) Most recently, in April the Commerce Department began investigating yet another anti-dumping suit, from a California company, alleging that the Vietnamese/Malaysian/Thai/Cambodian suppliers of panels are taking Chinese panels and reselling them. This has opened the possibility of *retroactive* tariffs – in principle, as high as 250 percent, though as with the Chinese case potential outcomes likely would vary by source – as well as higher future costs. This may be more than the recently strong U.S. market for solar power can absorb: a survey by the Solar Energy Industry Association three weeks ago, for example, finds Association members delaying or scaling back 318 of their 596 current utility-scale projects out of concern over the costs and penalties this new antidumping case may bring It has also led to a decision to extend the life of two Indiana coal-fired electricity plants for two years.

In general, then, a lesson in the limits and drawbacks of tariffs as industrial strategy tools; an illustration of the potential resulting clash of industrial strategy and decarbonization, as the cost of tariffs begins to overpower the tax incentives and purchasing policies meant to promote renewable energy; and a sudden question about hopes for rapid “de-carbonization” in electricity. Not at all an outcome anyone would want; but one, depending on the next steps in this new case, in which the most damaging outcomes can still be averted.