Last Friday, the Biden Administration announced that it would extend the Trump Administration’s solar tariffs for four years but with modifications of a reduced scope. Extending the solar tariffs will do more harm than good to the U.S. solar market and create unnecessary barriers to achieving President Biden’s ambitious climate goals.
The Trump Administration placed tariffs on all imported solar cells and modules that started at 30 percent in February 2018 and declined to 15 percent in 2022. Countries that are deemed to be eligible for Generalized System of Preferences (GSP) were exempted from the tariffs. China was the major target of the tariffs as it is the biggest solar manufacturer in the world, having manufactured 80 percent of the world’s photovoltaic products in 2019.
President Biden will extend the Trump-era solar tariffs for another four years but will ease their restrictions. Specifically, the administration doubled the quota from 2.5 gigawatts to 5 gigawatts of solar cells that can be imported into the U.S. tariff-free. Bifacial solar panels will continue to be sold to the U.S. without being subject to the tariffs.
Extending the solar tariffs will continue to slow down the growth of the U.S. solar industry and harm domestic consumers. While U.S. domestic solar manufacturers may benefit from the protectionist tariffs, they account for a small portion of the entire U.S. solar industry. Most of the U.S. solar value chain consists of solar installation and project development. In 2020, there were 150,000 jobs in the U.S. solar installation and development sector, and 31,000 jobs in solar manufacturing. Levying tariffs on imported solar products will increase solar panel prices in the U.S., lower domestic demand for solar energy, and cost jobs in the downstream solar sector. According to Wood Mackenzie, solar system prices would drop by 30 percent in the U.S. if all solar tariffs were removed. The Solar Energy Industries Association estimated that the solar tariffs resulted in 62,000 fewer jobs between 2017 and 2021, 10.5 gigawatts of lost solar deployment, and $19 billion in lost investment.
Maintaining the solar tariffs will also risk more tit-for-tat tariffs in the clean energy sector from the U.S.’s trading partners. This will further hinder the growth of the U.S. solar market. Past experience is a good lesson. The Obama Administration put in place anti-dumping and countervailing duties on China solar products in 2012. This resulted in retaliatory tariffs imposed by the Chinese government on polysilicon (a key raw material for solar production) manufactured in the U.S.
One of the arguments used by the proponents to support the solar tariffs is that the solar products manufactured abroad, such as China or Southeast Asia involve more carbon-intensive production processes. They argue that tariffs need to be put in place to account for the higher emissions associated with imported solar products. However, a much better policy to level the playing field between U.S. and domestic producers would be to enact a domestic carbon tax in the United States, and implement carbon border adjustments. Carbon border adjustments would tax goods based on where they are consumed, including imported goods and domestically produced goods, exempting exported goods.
Tariffs are protectionist policies that create winners and losers across the value chain, and hurt domestic consumers. If the Biden Administration is serious about achieving its climate goals, it should have let the solar tariffs expire entirely to help deploy solar energy as quickly and widely as possible in the United States.
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