Solar wars threaten climate fight

Amidst gloomy news in the deteriorating climate change situation is this bright spark – the cost of solar energy has been going down dramatically.

 THE source of clean and renewable energy is seen as one of the major saviours that could help power the world without emitting greenhouse gases.

The drawback is that solar energy has traditionally been more expensive to use than carbon-intensive coal or oil.

But in recent years solar power has become much cheaper. Energy experts predict that its cost could match that of conventional fuels in the next few years in some areas.

Solar cell prices have been falling, from US$76 (RM235.52) per watt in 1977 to about US$10 (RM30.99) in 1987 and only 74 cents (RM2.29) in 2013. Between 2006 and 2011, Chinese cell prices dropped 80% from US$4.50 (RM13.95) per watt to 90 cents (RM2.79) per watt.

Factors for this include a drop in price of the main raw material polysilicon (due to oversupply), increasing efficiency of solar cells, manufacturing technology improvements, economies of scale and intense competition.

The use of solar energy has shot up as the cost goes down. Global installed capacity jumped by 28.4 gigawatts (one gigawatt is 100,000 megawatts) in 2012 to reach 89.5GW. The 100GW milestone will be crossed some time this year.

All this is good news for the fight against climate change. Now comes the bad news.

The growing global demand has prompted the rise of solar panel manufacturers, and the competition is fierce, with a number of companies facing closure. China’s biggest solar energy company Suntech is in serious trouble.

But China has even bigger problems. The United States government, receiving complaints from US solar panel manufacturers, has slapped high anti-dumping tariffs on Chinese imports.

Now the European Commission also plans tariffs averaging 47% on Chinese solar products which it claims are selling below cost.

China is taking these threats seriously. Premier Li Keqiang in a visit to Europe last week took up the issue with European leaders.

Senior trade officials say China will retaliate. A full-scale trade war is thus imminent.

In a surprise turn of events, Germany and 16 other European countries have told the European Commission they are against its move.

But EC Trade Commissioner Karel De Gucht will apparently still slap on the tariffs provisionally, which is within his power to do.

So the solar wars between China with Europe and the US will likely proceed. This is a real pity, as the commercial interests of the countries are coming in the way of rapid progress in solar energy and the fight against climate change.

The expansion of the solar panel industry in China has played a crucial role in getting prices down, making solar energy more and more competitive, and driving its explosive growth.

Yes, China subsidises and promotes its solar industry. But the US and Europe also provide massive subsidies and supports.

The US has provided its solar companies with loan guarantees, research grants and tax deductions including investment tax credits and accelerated value depreciation.

European countries have given subsidies to consumers using solar energy, and incentives to producers including through the feed-in tariff scheme, in which solar energy providers are paid prices higher than what is charged to electricity users with the price difference being met by governments.

Without the subsidies, the solar industry would not have grown. Trade protectionist measures taken by one against the other, or by all against others, would be a recipe for disaster – for trade, the solar industry and the environment.

Well known solar energy advocate and chairman of Solarcentury Jeremy Leggett uses the following analogy to illustrate the trade war: “A planet faces an asteroid strike. Its inhabitants manufacture rockets with which to head off the threat. But, as the rock nears, they descend into international bickering over who pockets what from rocket-making.”

No one wins in this trade war, because of global solar supply chain, explains Leggett. Solar ingots, the upstream feedstock, are mostly made in Europe and America. The midstream products, cells and modules, are mostly made in China.

If China is hit on the mid-stream products it exports, it could retaliate with tariffs on the upstream products it imports.

For example, in Europe, the tariffs against China would wipe out thousands of jobs because most are not in manufacturing but in the companies that install the modules, regardless of where they are made.

The solution, he adds, is for the leaders of the few countries where most solar panels are manufactured to make a deal that coordinates the subsidies required in the various parts of the solar chain, and which is required for the few years that some countries need to bring the price of solar energy to parity with that of conventional energy.

An apt conclusion is made by Leggett: “The world will have to embrace common security on a bigger scale. Engaging in international competition while clinging to the illusion that markets always work will never solve our common problems of energy insecurity, poor air quality and resource depletion, never mind development. We will keep on maiming industries that can save us.”

Global Trends
By MARTIN KHOR

Trade war looms over EU tax

Global Trends By MARTIN KHOR

This week, 26 countries will meet to organise retaliation against the EU over its move to tax airlines for their emissions. This may be the first salvo in dangerous trade wars fought over climate change. 

A TRADE war is looming over the European Union’s move to impose charges on airlines on the basis of the greenhouse gases they emit during the planes’ entire flights into and out of European airports.

Many countries whose airlines are affected – including China, India, Malaysia, Nigeria, South Africa, Egypt, Brazil and the United States – consider this to be unfair or illegal or both.

Since their protests have not yielded results, officials of 26 countries are meeting in Moscow this week to discuss retaliatory action against the EU.

The EU’s move, which took effect on Jan 1, and the tit-for-tat actions by the offended countries, is the first full-blown international battle over whether countries can or should take unilateral trade measures on the ground of addressing climate change.



Developing countries in particular have been concerned over increasing signs that the developed countries are preparing to take protectionist measures to tax or block the entry of their goods and services on the ground that greenhouse gases above an acceptable level are emitted in producing the goods or undertaking the service.

Besides the airlines case, several other measures are being planned by the EU or by the United States that will affect the cost of developing countries’ exports.

In fact, trade measures linked to climate change may become the main new sources of protectionism.

The EU’s aviation emissions tax is thus an important test case, and this could explain the furious and coordinated response by the developing countries, which form the majority of the protesting 26 nations meeting in Moscow.

The countries are particularly angry that the EU is imposing a charge or tax on emissions from the entire flight of an airline, and not just on the portion of the flights that are in European airspace.

The EU action takes effect by including the aviation sector (and airlines of all countries) in the European Emissions Trading Scheme.

Beyond a certain level of free allowances, the airlines have to buy emission permits depending on the quantity emitted during the flights.

As the free allowances are reduced in future years, the cost to be paid will also jump, thus increasingly raising the price of passenger tickets and the cost of transporting goods, and affecting the profitability or viability of the airlines.

The China Air Transport Association has estimated that Chinese airlines would have to pay 800 million yuan (RM387mil) for 2012, the first year of the EU scheme, and that the cost will treble by 2020.
The total cost to all airlines in 2012 is estimated at 505mil (RM2bil), at the carbon price of 5.84 (RM23.30) per tonne last week, according to Reuter Thomsom Carbon Point.

Last September, when the carbon price was 12 (RM48) per tonne, Carbon Point had estimated the cost to be 1.1bil (RM4.4bil) in 2012, rising to 10.4bil (RM41.6bil) in 2020.

While this may generate a lot of resources for Europe, airlines in developing countries will in turn have to pay a lot.

There are many reasons why the concerns of the affected countries are justified, as shown by Indian trade law expert R.V. Anuradha, in her paper on Unilateral Measures and Climate Change.

Since each country has sovereignty over the airspace above its territory (reaffirmed by the Chicago Convention), the EU tax based on flight portions that are not on European airspace infringes the principle of sovereignty.

The UN Climate Convention’s Kyoto Protocol states that Annex I parties (developed countries) shall pursue actions on emissions arising from aviation through the International Civil Aviation Organisation (ICAO).

Consistent with the principle of common but differentiated responsibilities, only Annex I countries are mandated to have legally binding targets. This UNFCCC principle is violated by the EU requirement affecting airlines from both developed and developing countries.

ICAO members have been discussing, but have yet to reach agreement on, actions to curb aviation emissions. Last October, 25 countries issued a paper in ICAO protesting against the EU measure.

While the United States has challenged the EU action in a European court, China has ordered its airlines not to comply with the EU scheme unless the government gives them permission.

In addition, retaliation measures such as imposing levies on European airlines and reviewing the access and landing rights agreements with European countries are being considered by the 26 countries.

What happens in this aviation case is significant because there are many other unilateral measures linked to climate change being lined up by developed countries.

These include the EU plan to impose charges on emissions from maritime bunker fuel, a US Congress bill that requires charges on energy-intensive imports from developing countries that do not have similar levels of emissions controls as the US, and several schemes involving labels and standards linked to emissions.

If these unilateral measures are implemented, then developing countries will really feel they are being victimised for a problem – climate change – that historically has been largely caused by the developed countries.

Moreover, this will lead to a growing crisis of both the climate change regime and the multilateral trade regime.