Let’s close the loop on tariffs to create a sustainable, clean energy economy that benefits everyone
By Julia Bell, Chief Commercial Officer, CleanCapital
For the past decade, ‘tariff’ has been an all too familiar term in the solar industry, evoking a mix of strong opinions among stakeholders. In 2012, the Obama administration imposed tariffs on certain imported cells and modules for the first time in a bid to salvage the dwindling solar industry. In 2018, the Trump administration expanded on this approach by introducing Section 201 solar tariffs. The Biden administration followed its predecessors in extending Trump-era tariffs earlier this year. After a decade of various tariffs on solar imports, the US solar industry is still struggling.
As we have seen over the past decade, tariffs alone — even coupled with the U.S. solar manufacturing investments promised by President Biden’s recent executive actions — will not ensure dynamic domestic manufacturing capacity and will not create enough high-quality jobs for American workers in the solar industry. Only the combination of thoughtful long-term development plans coupled with policies that prioritize construction of near-term projects will produce a holistic, world-leading, domestic U.S. solar industry capable of meeting Biden’s goal of a 100% clean national grid Electricity by 2035.
The US demonstrated the first practical silicon solar cell and was once a strong technology leader in the field, but as China increased its sizable subsidies without an accompanying response here at home, it has become incredibly difficult for US companies and workers to compete. While some argue that taxing imports is the best way to encourage domestic production, tariffs are not a panacea, especially in the short term.
Despite 10-year tariffs, US makers of PV modules, solar-grade polysilicon, and silicon PV wafers and cells lost 80% of their global market share from 2011 to 2021. According to Wood Mackenzie, PV module production capacity this year alone compares to nearly 25 GW of expected installs. Imposing tariffs without addressing the realities of this imbalance creates a hostile relationship between US workers and solar advocates. This pits two major concerns against each other in a false dichotomy and distracts from our shared vision of America’s energy independence.
In recent years, tariffs have caused many solar developers to shift from being dependent on Chinese modules to being dependent on suppliers in other countries. But Auxin’s trade complaint roiled the industry, setting off a chain reaction that threatened the industry’s future. The possibility of new tariffs put 64% of US solar builds at risk in 2022; Even the initial investigation stopped the flow of more than half of US shipments and 80% of imports.
Tariffs increase the cost of the products themselves and increase the uncertainty created by shortages and delays – which in turn makes these projects riskier and more expensive to underwrite. Tariffs also risk delaying technological advances in the US as the availability of new, more efficient modules is limited in favor of import-substitution production. This jeopardizes long-term project performance and returns. Fluctuations in commodity prices, rising steel costs due to the war in Ukraine, and the inability to ship components and materials from boats to US ports only further contributed to a significant slowdown in clean energy deployment.
There is very little confidence across the industry that short-term projects can be completed on time. This is causing investors like CleanCapital to think carefully about where we invest. Efficient use of capital is based on the certainty that projects can be completed on time, within budget and without political risk. But now we live in a world where a module order placed today may not arrive for a year. In fact, many record suppliers have delayed or canceled orders altogether. If the industry is reduced to trading operational projects, we will not be able to fulfill our mission to accelerate nationwide investments in solar energy and contribute to decarbonization efforts. Meanwhile, dependence on fossil fuels continues, increasing our carbon footprint and associated negative environmental impacts.
Fortunately, President Biden recently took executive action to impose a two-year tariff suspension on solar cell and module imports from Cambodia, Malaysia, Thailand and Vietnam. As the US Department of Commerce continues to pursue the Auxin case, it gives solar contractors a chance to continue their work.
Achieving a future in which the United States meets its clean energy goals with projects composed of domestic, indigenous panels and components requires federal action to ensure the industry is not once again swamped by ineffective trade policies . Developers work on projects for several years, and financial institutions now need reassurance that their investment funds will later result in fruitful, thriving projects.
There is an opportunity for the government to provide that assurance by offsetting the punitive effects of the tariffs with significant, long-term investments in the US solar industry. Today, the money from the solar tariffs flows into the federal coffers with unknown destinations. Why not balance the burden tariffs imposed on the solar industry with policies that ensure investment in its continued growth? Closing this loop will boost American innovation and reduce the need for imports as domestic production becomes economically viable.
A policy that draws on American ingenuity to bring domestic workers together in both the upstream and downstream solar industries will allow the United States to regain its feet and lead the field. While President Biden’s invocation of the Defense Production Act to expand U.S. production of solar panel components is a welcome move, congressional funding remains uncertain. Only sizeable subsidies will help US manufacturers regain their footing and spark the kind of technological innovation that once made the United States a pioneer in this area. And while the Build Back Better Act remains in legislative purgatory, Congress should take the crucial step of extending and expanding tried-and-tested measures like the investment and production tax credits along with direct payments to boost solar deployment.
Despite these headwinds, we must remember that the sun is still on the rise. To build the renewable energy capacity needed to foster a resilient clean energy economy, the federal government must enact thoughtful, realistic, and long-term plans that nurture a robust domestic manufacturing sector without jeopardizing near-term projects.
After all, clean energy is a public good. Curbing the climate crisis, creating good-paying jobs, and promoting domestic energy independence is a win for our planet and our nation. And it’s just the right thing.
Julia Bell oversees project acquisitions, due diligence and construction for CleanCapital, including structuring, negotiating and executing the company’s acquisition and development strategies. Prior to joining CleanCapital, Julia was an energy and project finance attorney at global law firm White & Case LLP in New York City and Mexico City. Before practicing law, Julia worked as a political advisor for operations in the Office of the City of New York. Julia is a graduate of the University of Chicago and the NYU School of Law.