The US renewable energy industry is suffering at the hands of overseas competitors who are refusing to play fair, the Information Technology & Innovation Foundation claims in a new report. By using "unfair" practices, countries including China, India, and Brazil are threatening both the USA's renewable technology sector and the future of renewable energy at large.

Protectionist policies such as import tariffs are just one type of "green mercantilism" described in the report, with IP theft, currency manipulation, export dumping (flooding the export market with discount goods) and forced technology transfer (the handing over of advanced technology to another country in exchange for access to its domestic market) are among other methods employed.

Solar wars

Violating "the spirit or the letter" of WTO law, such policies contributed to the relative collapse of US solar exports, the report's authors argue. "The United States watched its first-generation solar PV export market share fall from 30 percent to 7 percent in under a decade while China's grew from two percent to 55 percent," co-author Matthew Stepp wrote in an email to Ars.

Recent months have seen counter-salvos from the US in what is fast becoming a trade war with China. In May, the Department of Commerce announced a 30-percent minimum tariff on Chinese solar imports in response to a petition by the Coalition for American Solar Manufacturing (CASM) which claimed China had swamped the US market with illegally discounted goods. US PV imports from China decreased 64 percent during April in anticipation of the tariff.

On Tuesday, CASM, which has 210 member companies, warned that importers evading tariffs on Chinese solar cells and panels may be guilty of "conspiracy to commit offense or to defraud the United States," and there are signs that US Customs and Border Protection is preparing to play hardball with infringing importers.

Such combative measures aren't universally welcomed. As far back as December, Jigar Shah of the Coalition for Affordable Solar Energy (CASE) wrote to SolarWorld, a member of CASM, asking the company to withdraw its petition on the grounds that it threatened the $60 billion "pipeline" of planned solar installations. In a strongly worded response, SolarWorld's Gordon Brinser dismissed Shah as a mouthpiece of Chinese solar manufacturers at large.

The threat to innovation

If it's a case of a chasm between CASM and CASE, then the Information Technology & Innovation Foundation stands firmly on CASM's side. The report does acknowledge the merits of the argument that in undercutting US manufacturers, China is effectively subsidizing the US with cheap renewable technology (and therefore the associated services and jobs). This will spur renewable energy proliferation which will in turn lead to lower energy prices. The report argues, however, that this consumer-oriented view is short-termist. The bigger picture is the stifling of innovation which spells a grim long-term prognosis for the entire renewable industry.

The report's logic is that a renewable sector in which low cost is king has little to no incentive to innovate. And further innovation is crucial if renewable technologies are to surpass fossil fuels on a dollar per watt basis. The report cites MIT research into the cost effectiveness of PV, which must achieve a cost of $0.50 per peak watt without subsidies in order to compete with coal–a target requiring "advanced concepts not currently in industry roadmaps," according to the MIT study.

"If the goal is to create a global energy system that is largely carbon free, continual dependence on subsidies, whether domestic and legitimate or foreign and mercantilist, is not the way. Driving innovation is," the report finds.

The implications for "green mercantilism" go well beyond both China and the solar industry, Stepp argues. "Now many countries are increasingly using green mercantilist practices to spur similar rapid growth in wind turbines, biofuels, energy storage, and electric vehicles," he writes, while the report cites examples of wind subsidies in Vietnam, the E-FACE program in Japan, and tax relief for biodiesel producers in Brazil.

Counter-mercantilism?

But are the tariffs imposed by the Department of Commerce (at CASM's behest) a sensible response? Doesn't such counter-mercantilism have the potential to escalate the problem? "The US solar industry (or at least the manufacturers that were party to the petition) were justified to have brought the case because of unfair Chinese policy support of their domestic industry, and tariffs are the proper response in the immediate to level the playing field," Stepp told Ars.

"Tariffs are the proper response in all cases of green mercantilist policies because not only do they hurt U.S. domestic industries, they harm the global communities ability to innovate," he added.

Though Stepp admits counter-tariffs have the potential to escalate matters, aggressive mercantilist responses are the only way to level the field of play. A technological optimist might argue that were the US to focus solely on innovation, its renewable technology could leap ahead of competitors hawking the same old cut-price wares. Ars put this to Stepp.

"In order for the U.S. to out-innovate, it must still prosecute green mercantilist policies. To give an example, China's dominating first generation silicon-based solar PV. But the US has been a leader in second generation thin-film solar technologies and is currently investing significantly in third and fourth generation solar designs that use nanotechnologies. What's to stop China from simply doing what it's doing now in first generation solar to next-generation solar? Why wouldn't they just use practices like forced technology transfer, barriers to market access, etc., to gain a foothold in those advanced industries and unfairly subsidize and export dump their way to market dominance?"

A silver bullet?

But innovation is crucial, Stepp argues. The report characterizes the renewable industry's situation as a choice between an innovation-driven race to the top versus a subsidies-driven race to the bottom. Only the former will permit the global renewable industry meet its potential for growth, projected to be $2.2 trillion in the coming decades.

The authors call for a global adoption of "good" renewable energy policy which will benefit both individual nations and the global renewable industry. Such policy includes education and skills training, fair and competitive trading and research funding–but it's the latter that seems to be key.

International agreement on climate change could provide the impetus needed to put the focus of renewable industries back onto innovation. The report proposes that nations be offered the choice between reducing greenhouse gas emissions or increasing their research into clean energy technology. "Setting even a modest target like 0.065 percent of nation's GDP devoted to clean energy RD&D would increase public investments in innovation by $40 billion annually, assuming most countries agree to the targets," the report asserts.

Such an agreement could follow the model of the Information Technology Agreement (ITA) established in 1996. Though such agreements are not without their complications, the authors argue that a Clean Technology Agreement would eliminate tariffs that would increase the demand for clean energy, while fostering a more harmonious clean energy market.

But without such an agreement in place it would seem that mercantilism begets mercantilism. And while some argue that that may be good for clean energy advancement, the Information Technology & Innovation Foundation strenuously begs to differ.

The full report, entitled Green Mercantilism: Threat to the Clean Energy Economy and co-written by Matthew Stepp and Robert D. Atkinson, is available from the ITIF website.