Tuesday, June 10, 2014

International Free Trade in Solar Panels and Domestic Tariffs

Do U.S environmentalists support the recent policy of the U.S Commerce Department to impose tariffs on Chinese solar panels?  Whether international trade is "good" for the environment is an old question that Larry Summers wrestled with in this memo and Copeland and Taylor have done great research on.    In this 2012 paper, Aparna Sawhney and I argue that free trade in "renewable power equipment" raises a new set of trade and the environment issues.

Here is the abstract:

"We track US imports of advanced technology wind and solar power-generation equipment from a panel of countries during 1989–2010, and examine the determining factors including country size, sector-specific US FDI outflow, and domestic wind and solar power generation. Differentiating between the core high-tech and the balance of system equipment, we find US imports of both categories have grown at significantly higher rate from the relatively poorer countries, and particularly China and India. Larger countries are found to be exporting significantly more, and US FDI is found to play a significant positive role in the exports of high-tech equipment for the poor countries. For the core wind and solar high-tech equipment, we find domestic renewable power generation of the exporting countries also played a significant positive role."

The big point of this paper is that renewable power equipment is an example of a piece of capital that offers global externality benefits as its adoption reduces global GHG emissions.  This means that importing nations and the rest of the world gain if exporting nations such as China choose to strategically subsidize green industries such as solar panel makers and wind turbine makers.  Note that these  products are different than toys or cars that the mass production of these goods lowers the price of adopting green technology by mainstream U.S firms such as Walmart.  The U.S in its pursuit of protecting "U.S jobs" is sacrificing environmental progress.  Will mainstream environmentalists acknowledge this point?

Demand curves slope down. If tariffs rise sharply, then how much will U.S adoption of wind turbines and solar panels fall by in the short term and medium term?