Europe flunks the solar panel test

By François Godement, May 29, 2013

Solar Panels

Solar Panels

François Godement, Professor of political science at Sciences Po in Paris and Senior policy fellow of the European Council on Foreign Relations asks whether the fact that Chinese solar panels are benefitting from unfair subsidies is damaging to the EU and its negotiating position.

There is no sector of the European Commission that has a better track record for efficiency and coordination than trade policy. In fact, one could say that trade policy is the sole form of hard power of the European Union, the only area where it is a global power. And there is no more power-charged European commissioner than Karel de Gucht, the fighting Flemish free-trader whose strategy is best expressed in one-liners and concrete examples than in long-winded speeches. De Gucht is no friend to protectionists and often rails at the bargaining tactics of some EU member states in Brussels. It is this man who has taken on the Chinese trade elephant on two key and interrelated enquiries – one about China’s top telecom firms, Huawei and ZTE, who are said to benefit from undue financial subsidies to back up their international expansion. And China’s solar panel makers, who are the spear of a $100 billion push by the Chinese state for alternative energies.

Solar energy was deemed to be a niche for development both on the Chinese market and abroad, so much so that China has become by far the world’s top producer. In so doing it has also produced a domestic and international glut. In China, that is because coal is an economically unbeatable source of energy, while China’s electricity grid is not sophisticated enough to manage intermittent and unpredictable local production. Abroad, because Chinese price wars and heavy financing have resulted in a steep price fall: solar panels are now like coffee beans and RAM chips – they are a commodity rather than a high-tech product. In other words, China has been killing the market for other producers, by forcing prices so low that they are not viable for Chinese companies – subsidies have to make up the difference.

The solar panel case seemed like an open and shut case, one which also did not threaten huge established sectors – this is not a highly labour-intensive industry. So why is Europe now shooting itself in the foot, with Germany and the UK leading the charge against De Gucht’s attempts to create a level-playing field for international competition?

One reason is never discussed openly, but always lurking: China has pressured member states, starting with Germany. It was not difficult at second track German-Chinese conferences last fall to hear a threat by a Chinese diplomat against Germany’s auto industry – the breadwinner of German exports in China. The actual weight of the European solar panel sector is minimal, while China can target and take hostage industry giants, or so it seems. And China does not desist from threats: right now it alone is also refusing to pay passenger tax for its airlines on flights within Europe.

The German and British attitude is sad inasmuch as it is now shooting at the European Commission sector that probably works best. It seems that negative consensus is the preferred mode of convergence for Europeans. They make the Commission look isolated when in fact similar decisions are directly contemplated by the United States, where solar panels are a much bigger industry issue.

But there is a second reason. European procedures are slow to come to fruition. Between first mention, inception and actual decision on the anti-dumping measure for solar panels, the international energy situation has reversed itself. The price of oil is dropping The US shale oil and gas revolution has already produced a glut of coal that is being exported to powerhouses such as Germany and China at very cheap prices (the open secret of German energy policy is that after agitating against nuclear power for the sake of the environment, it, like China, has relied increasingly on King Coal – cheap and dirty, of course). Energy prospects, right or wrong, are increasingly for lower prices and oversupply. Germany is in fact considering a reduction of its tax subsidies to consumers for alternative energies – which France has already done.

So another course of action might now be as follows. China is overproducing solar panels at rock-bottom prices (in fact the only way they may remotely compete with other forms of energy). India has grasped this, which is quietly emptying the shelves of Chinese sellers to supply its population with solar panels. A rise in price for solar panels – which would happen with a 47 percent levy as contemplated by the EU – would simply kill the market. So another course of action might be to take the panels at these low prices, courtesy of Chinese producers and taxpayers. Our own solar panel producers need to move to even more efficient technologies to regain any hope of  competing with gas and coal at present prices.

There is no question that the Commission is right in its estimates on unfair competition from China’s hybrid and state supported economy. But solar panels may have become the wrong test case, given the reversal in global energy trends.  What started as a good idea two years ago is now invalidated by this new energy context.

Meanwhile, of course, the EU process itself is giving another horrible public display. As usual, it has been too slow – and that’s no fault of DG Trade, but a product of existing rules. And it’s admissible for democracies to have disputes between the executive branch and elected legislatures. But an open dispute between the Commission and member states, in what is probably the only sector where the EU usually commands respect abroad, is a terrible message to send to our international partners. Germany’s heavy handed action, with the added suspicion that it is hostage to its own interests on the China market, confirms all the fears we may have about Europe being driven by national governments rather than by a federal power.

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François Godement is Professor of political science at Sciences Po in Paris, Director for strategy of Asia Centre, also in Paris (www.centreasia.eu), Senior policy fellow of the European Council on Foreign relations (www.ecfr.eu), and non resident Senior associate of the Carnegie Endowment for International Peace (Washington). He is also an outside consultant to the Policy Planning Directorate of the French Ministry of Foreign Affairs.

Article originally published on European Council for Foreign Relations

 

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