Posted May 13, 2014 by Ben Lilliston
On Friday, President Obama announced new commitments to support the solar industry and create green jobs. Too bad the President’s trade agenda didn’t get the memo.
In practice, the Obama Administration’s relentless free trade agenda is colliding with its climate and renewable energy goals, leaving four U.S. state programs, designed to spur green jobs and renewable energy, vulnerable to trade challenges, while directly limiting renewable energy growth in one of the world’s fastest emerging economies.
In April, the U.S. Trade Representative (USTR) took the first steps toward challenging India’s program to expand solar energy production by supporting local companies and green jobs, charging that it violates World Trade Organization (WTO) rules by limiting U.S. companies’ access to the program.
Now, India has responded (subscription required, alternative link) by raising questions about solar energy programs in four states—Minnesota, Delaware, Connecticut and Massachusetts—that also provide benefits for companies that use renewable energy equipment manufactured in that state.
India’s solar initiative, known as the Jawaharlal Nehru National Solar Mission (JNNSM), is designed to boost the nation’s renewable energy use and create jobs. Growth in the renewable energy sector was cited by the Intergovernmental Panel on Climate Change’s report last month as critical in the global fight against climate change. India’s program requires the purchase of domestically manufactured solar cells and modules in order for companies to receive a variety of government benefits, including favorable rates for electricity purchases. The U.S. charges that India’s “local content requirements” violate WTO national treatment obligations (which require foreign firms to be treated the same as domestic firms).
The U.S. state programs questioned by India have similar goals to create green jobs and spur renewable energy by providing a variety of benefits for solar manufacturing and sourcing within each state. Minnesota’s Solar Rewards Program enables residential and commercial customers to access a solar rebate program to install photovoltaic (PV) systems, but the PV module must be manufactured in Minnesota. Delaware provides solar renewable energy credits if 50 percent of the cost of energy equipment is manufactured in Delaware. Massachusetts has a rebate program requiring PVs to be manufactured in Massachusetts or have a “significant” presence in the state. Connecticut has incentive programs for the use of major system components manufactured or assembled in the state.
A number of environmental groups, including the Sierra Club and Greenpeace, sent a letter last month to the U.S. Trade Representative Michael Froman calling on him to drop the WTO action against India.
“While it is critical to support and build a U.S. solar industry, the development of our solar industry should not come at the expense of India’s ability to develop its solar industry […]. We see troubling signs that climate policy may increasingly be determined by the WTO and similar arenas based on trade law rather than on climate science and the real-world necessities of building a green economy.”
This is welcome recognition by parts of the environmental movement that expanded trade liberalization is inherently incompatible with effective climate policy.
The Obama Administration’s trade fight with India’s solar program is consistent with a broader USTR effort to eliminate what it calls “Localization Barriers to Trade.” For example, as part of the Transatlantic Trade and Investment Partnership (TTIP), the U.S. and EU governments are considering for the first time a “Localization Barriers” chapter, which would coordinate joint strategies to target initiatives in other countries attempting to strengthen their local economies. The procurement chapter in TTIP could target a number of different U.S. state and local programs related to food (potentially farm to school programs) and energy programs. TTIP has also been criticized by environmental groups, including the Sierra Club, for expanding fracking and rolling back clean energy programs.
The WTO has previously been used as a tool to attack other energy programs that require local sourcing. Last year, the WTO ruled in favor of a EU and Japan government challenge of Ontario, Canada’s “feed-in tariff” renewable energy incentive program—charging that its local content requirements for solar panels and other renewable sources favored domestic over foreign companies. So, if these trade challenges succeed, countries all over the world would be compelled to back off support for innovative local renewable energy programs or risk trade sanctions.
The attack on India’s program, in particular, could be even more damaging. As one of the largest nations and fastest growing global economies, India is instrumental to the success of any global climate agreement. The U.S. is calling on India to both sharply reduce its carbon emissions while at the same time directly attacking a potentially key policy for achieving that goal. The hypocrisy of this simultaneous, contradictory stance is extremely damaging to both the credibility of the U.S. and efforts to reach a global agreement on greenhouse gas reductions.
If it looks like the Obama Administration is working at cross purposes that’s because it is. If the Administration is serious about addressing climate change and creating green jobs, it needs to scrap its current trade agenda. The USTR should back off from this trade fight with India and recognize that there is more at stake than multinational corporate profits.