Solar’s Other Trade War: What a trade battle means for India and the climate

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By Zadie Oleksiw Last summer, seventeen CEOs and senior executives signed a letter addressed to President Obama, imploring his administration to take diplomatic and legal action against India. The letter warned him of what could become of US business if India’s various new government-funded initiatives to grow its domestic industries included what’s known as a local content provision.

The cosigners, among them the U.S. Chamber of Commerce, National Association of Manufacturers (NAM), and CropLife America, wrote that the United States must push for “fair” (lower case f) trade with India:

“Over the last year, the courts and policymakers in India have engaged in a persistent pattern of discrimination designed to benefit India’s business community at the expense of American jobs. The [Government of India] recently demanded that as much as 100 percent of its market for certain information technology and clean energy equipment must be satisfied by firms based domestically.”

The letter concluded on an ominous and somewhat threatening note: if all else fails, the US must use all available trade and diplomatic means to force India to change its policy.

The Solar Energy Industries Association (SEIA), America’s only national trade association for the solar industry, was among the long list of signatures. Here’s why.

In 2010, India created the “Solar Mission” to grow its national solar capacity to 22,000 megawatts by 2022.

The solar mission contains a domestic content requirement, or the so-called “buy local” provision, which mandates that a portion of new installed solar capacity must come from solar panels manufactured in India. Subsidies and guaranteed long-term rates for solar power incentivize project developers to comply.

A buy-local provision means potentially developing long-term Indian manufacturing jobs that could help propel its solar industry forward.

It also means fewer opportunities for American companies, including solar, to do business in India. SEIA opposes buy-local rules, and the cosigners of last year’s letter are worried about the precedent India’s solar mission could set for trade.

India’s extra-large stake in climate change solutions

Though a bit circuitous, it’s important to see the connection between this trade conflict and climate change.

India is among nations that will be disproportionately affected by the earth’s rising temperature. A 2013 World Bank report found that for India and neighboring countries, intense vulnerability to climate change means increased monsoons, floods, and food scarcity that will affect some 63 million people.

In light of this and the group’s encouragement of India’s overall development, the World Bank advocates for India’s renewable energy growth and specifically supports India’s National Solar Mission.

This is noteworthy because the World Bank and the WTO work closely together implementing global economic policy. Asking one group to contradict the other, as was asked of President Obama in last summer’s letter, can easily become a bureaucratic and legal mess, impeding climate goals and exacerbating diplomatic tensions between the two countries.

India is also the largest population of impoverished people coupled with extreme vulnerability to increasing climate-induced disasters, and the solar mission was created as part of India’s National Action Plan on Climate Change. The Mission was included for more than the sake of developing its solar industry. It’s also part of a mission much larger than itself: help India follow, and perhaps lead, the world’s quest for sustainability.

What’s next: Indian, American business interests face trade court

On February 10, the U.S. sided with American business. The United States Trade Representative (USTR) filed a WTO complaint against India, alleging that the country may be “unfairly” supporting the development of its solar manufacturing sector. USTR representative Michael Fromer said that “these domestic content requirements discriminate against U.S. exports… we are standing up today for the rights of American workers and businesses”.

While the filing isn’t truly surprising – the U.S. has a long history of prioritizing American business interests – it sheds light on conflicting perspectives of trade litigation.

Some environmental groups, including the Sierra Club, Greenpeace, and 350.org, see this as undermining of carbon reduction goals. They also advocate that a strong renewable energy industry in India and multiple countries can ultimately drive down the price of clean technology.

On the other hand, SEIA, which also supports climate solutions, sees this trade case as an example of their support. The group adheres to the free-market principle that buy-local rules will create an inefficient market and raise the price of technology on a global scale. This could mean slowed growth of the entire solar industry. Even if India grew its own domestic solar industry, the country has a lot to lose from an environmental perspective if its policies caused the global market to stagnate.

While it’s not certain what will happen – these cases are often a series of litigious hearings and debates – it’s clear that the stakes are great; it’s a lose-lose for everyone if India doesn’t transition to a clean energy economy.