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CGD’s nonsensical response to the China clean-energy subsidy case

January 5, 2011

It’s not entirely surprising that the folks at the Center for Global Development are about as appalled at this WTO case on Chinese clean-energy subsidies as I am. Unfortunately, the apparent logic behind David Wheeler’s indignation doesn’t make a whole lot of sense. He starts off nicely: “…it’s clear what we have to do now: Subsidize clean power, exploiting scale and learning economies to drive it to cost parity with fossil power as quickly as possible.” And then, after contrasting the Obama approach to this proposed solution, Wheeler gets nice and outraged towards the end:

Think about it: The Obama administration, having defined climate change as a global emergency, has responded to a massive Chinese drive toward cheap clean technology by demanding that they retreat! Mr. President, by the logic of your own rhetoric this is insane, because we’re out of time.

But then he reels off this killer concluding sentence:

Anything that makes renewable energy cheaper, anywhere in the world, should be welcomed without reservation. For trade in clean power technology that means no restrictions: no tariffs, no quotas, no sanctions, no limits of any kind, from now on.

It doesn’t take a genius to sort out that the WTO case against China is probably legitimate because the sort of policies that Wheeler is agitating for – the sort of policies that China is trying to implement – are likely WTO-illegal trade-distorting subsidies. (Important aside: the solution to this should not be to change these subsidies to conform to WTO rules; the solution should be to change the WTO rules!) These days, “no restrictions” on trade sure as hell means no industrial policy. So which does Wheeler really want: the smart industrial policy to promote clean energy that he seems to push for most of his article, or the ideological purity of “free trade” that CGD so frequently advocates, implicitly and explicitly? It’s got to be one or the other – it can’t be both.

Flying Whale

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3 comments

  1. I don’t think the issue is so black and white, even from an environmental standpoint. I think perhaps the solution would be to have American companies equally subsidized.

    A couple of thoughts to consider.

    Just because it’s a solar panel doesn’t mean that it’s good for the environment. China’s environmental protection is fairly minimal, so you could have solar panels that create more CO2 in their production than they offset before they breakdown (not exactly uncommon with Chinese products).

    Or imagine an American company, lacking the advantages of the Chinese company, goes out of business because it’s prices cannot compete. However it was the one doing research on higher efficiency or longer lasting photocells, that would have created a much greater benefit to reducing CO2 emissions.


  2. Tom-

    Thanks for your thoughts. I agree with your initial thought that having U.S. subsidies for green energy would seem to be the best solution to the “problem” of Chinese subsidies. But these U.S. subsidies would be just as vulnerable to WTO challenge as the Chinese ones, so the problem of using the WTO to attack sound industrial policies remains.

    Your point about the environmental sustainability of apparently “clean” energy technologies is interesting. I’d be very curious to see data on offset carbon emissions between Chinese and U.S. (for example) clean energy technologies, if any exist yet.

    Finally, your last point about the U.S. company going out of business despite creating what would have been a better product is well-taken; again, the policy solution to this potential problem is not a commitment to free-trade principles, but rather a commitment to smart industrial policy. Free trade the way it’s currently implemented would likely just lead to clean energy products being only as environmentally friendly as the cheapest ones available (i.e. a downward harmonization of standards); some regulatory action is needed.

    In other words, I don’t think we necessarily disagree, and you raise some interesting points.

    Thanks!


    • Great response. I am always happy when these comments are actually productive in clarifying my thinking.



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