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Trump's solar tariffs won’t boost the government’s bottom line

Trump's solar tariffs won’t boost the government’s bottom line
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When governments intervene in energy markets, they usually create winners and losers. Yet President TrumpDonald TrumpLil Wayne gets 11th hour Trump pardon Trump grants clemency to more than 100 people, including Bannon Trump expected to pardon Bannon: reports MORE has managed to create only losers with his scheme to impose tariffs on imported solar equipment. The only good news is that it could have been worse.

The headlines from Monday’s announcement say that tariffs will be set at 30 percent. But beneath those headlines, the tariffs are less than meets the eye. The tariffs will step down 5 percentage points each year, to 15 percent in 2022. And they’ll apply only to imported crystalline silicon photovoltaic modules and cells, excluding the first 2.5 gigawatts of imports each year.

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These features make the tariffs uniquely inept at achieving their intended goal — boosting domestic manufacturing of solar. That’s because the decision to build a new solar manufacturing plant is enormously capital intensive. To do so requires confidence in remaining competitive for decades to come, to recoup the upfront investment. Yet by the time any new domestic solar plant might be built, its protection against competition from foreign imports would already be stepping down. Furthermore, other forms of solar materials not targeted by the tariffs will continue to pour in, distorting preferences for one form of solar over another.

 

While the tariffs may give a lifeline to existing solar manufacturers, that too is a mixed blessing. The trade case that sparked the tariffs was filed by Suniva and SolarWorld. They’re hardly poster children for an “America first” trade policy. Both are bankrupt and foreign-owned — Suniva by the Chinese, and SolarWorld as a subsidiary of a German company. In all, domestic manufacturers supply just a tiny fraction of the U.S. market for the crystalline silicon photovoltaics targeted by the tariffs. They’ll get only a temporary reprieve for foreign competition as the tariffs step down.

Any job gains in manufacturing will be dwarfed by job losses elsewhere in the U.S. solar industry. The Department of Energy reports that 374,000 Americans work in the solar industry, with job growth among the fastest of any profession in the country. But just 18.5 percent of solar industry jobs are in manufacturing.

Far more Americans work in installing, marketing, and financing solar developments. Those jobs will be put at risk as tariffs slow the deployment of new solar farms and rooftops. The Solar Energy Industries Association estimates Trump’s decision will cut roughly 23,000 American jobs. Many of those jobs offer relatively high-pay for blue-collar workers.

The structure of the tariffs worsens the damage. The exemption of the first 2.5 GW of imports each year will save money for a few fast movers. But it leaves everyone else bearing the full brunt of the tariffs, hurting competitiveness at the margins.

Any boost to coal and natural gas will be short-lived. Slowing the installation of solar will hobble one of their competitors. But no one is looking to build a new coal-fired power plant in this country. And decisions to build new natural gas-fired plants require years of advanced planning, for investments that will last for decades. Crippling solar competitors short-term won’t keep them from surging back over the lifetime of a new gas plant.

Electricity customers will be hurt a bit too. Anything that raises the cost of solar, and slows down the transition away from costlier fuels, will slow declines in electric rates.

Tariffs won’t boost the government’s bottom line either. The government currently pays a 30 percent investment tax credit for new solar installations, and offers rapid depreciation of solar expenses. That means a big chunk of the tariffs will be paid back in higher tax credits. And fewer high-paying solar industry jobs means the government will collect fewer taxes on income and payrolls, and perhaps pay a bit more for unemployment benefits.

The environment loses too. Tariffs on solar will delay progress toward replacing fossil electricity with cleaner sources. That means more air pollution, water use, and climate-warming emissions.

It remains to be seen how much collateral damage Trump’s decision will inflict on U.S. exports. China and South Korea have already protested Trump’s tariffs on solar and washing machines. If they impose retaliatory trade protections, American exporters in other sectors could be hurt.

The one mitigating feature of Trump’s lose-lose-lose decision is that it could have been worse. Suniva and SolarWorld had sought far more draconian tariffs and restrictions on imports. GreenTech Media estimated that those higher tariffs would have crippled domestic solar installations.

Because solar modules represent only a fraction of the cost of a solar farm, and an even tinier share of the cost of rooftop solar, the impacts of Trump’s tariffs on project costs will be muted. Based on GreenTech’s earlier analysis, the slowdown in solar installations due to Trump’s decision may be roughly 8 percent. The industry dodged a bullet when the Republican tax bill left in place investment tax credits for solar, and continues to benefit from declining solar costs and from state policies favorable to solar.

In sum, President Trump’s decision delivered scattershot damage across the solar industry and job market, while doing virtually nothing to boost its competitors long-term and potentially provoking retaliatory moves on trade. But he hasn’t delivered a fatal blow to a solar industry that continues to make fragile progress toward cleaner energy and a thriving workforce.

Ultimately, the best way to boost solar manufacturers and installers alike would be to impose a substantial price on pollution. That would help solar outcompete coal, bring in new revenue for the government, and make solar and wind tax credits unnecessary.

For now, though, all we can do is tally the damage from Trump’s latest ill-advised decision, and breathe a sigh of relief that it wasn’t worse.

Daniel Cohan is associate professor of civil and environmental engineering at Rice University.