Anti-China fervor casts a dark cloud over solar and U.S. climate goals

Source: By Evan Halper, Washington Post • Posted: Sunday, April 30, 2023

In Congress, there is sudden bipartisan momentum to reinstitute tariffs on Chinese components. The U.S. solar industry is alarmed.

Solar Solution worker Lima Martinez installs panels on a Southeast Washington home in February 2022. (Robb Hill for The Washington Post)

As lawmakers work to isolate China by pressuring U.S. companies to abandon suppliers there, the fervor to undercut a rival threatens to undermine the transition to green energy at home.

Solar companies have become the latest clean tech sector to find itself in the crosshairs as Democrats, in particular, grow anxious that taking anything other than a hard line against China will cost them voter support. Momentum in Congress is escalating to reimpose steep trade tariffs that were suspended by President Biden last summer, a White House effort to give the industry time to move supply chains onshore.

The outcome of this unfolding political drama could have major consequences — not just for solar energy companies, but also for homeowners hoping to add solar panels to their roofs, motorists wanting to charge electric vehicles with clean power and utilities trying to reduce their carbon footprints.

It also reflects the challenge of rapidly transitioning to clean power while growing jobs at home, a mainstay of the Biden agenda. If a current or future Congress were to abruptly cut off access to Chinese factories and mines, the United States would lose access to materials crucial for solar panels, wind turbines and electric vehicle batteries powering the U.S. energy transition.

“Climate targets and green technology are becoming collateral damage,” said Jim Kapsis, a former adviser at the Treasury Department and founder of the Ad Hoc Group, which advises climate tech start-ups. “We haven’t figured out what we are willing to acquire from China and what we absolutely need to secure for ourselves. Politically, that answer has not yet been arrived at. Until it is, this is going to be a bumpy ride.”

Only weeks ago, the solar tariffs legislation — now headed for a House vote on Friday — was largely dismissed as a GOP messaging bill, a measure lawmakers could pass knowing Biden would veto it. While Biden still plans to block it, the growing Democratic support for it is unnerving clean tech executives, who are now bracing for similar bills to follow.

Sen. Robert P. Casey Jr. (D-Pa.), who represents a battleground state where Biden won by 80,555 votes in 2020, is one of the Democrats now inclined to support reviving the solar levies.

“I think China’s got to be held accountable,” Casey said in an interview. “I’m worried without that, we’re not going to have that kind of accountability.”

But if tariffs were reimposed, leaders in the U.S. solar industry say the impacts to jobs and climate targets would be devastating.

“I would have to lay off thousands of people,” said George Hershman, chief executive of SOLV Energy, a San Diego-based contractor of large solar projects around the nation. “When you are talking about projects that cost $300 million to $400 million, you can’t stop and start them easily. … I don’t know why anyone would support this.”

A pending fiscal crisis has somewhat overshadowed the solar tariffs debate. House Republicans on Wednesday passed legislation to raise the debt ceiling that, among other things, would repeal tax credits for solar and other forms of clean energy.

But while Democratic lawmakers are aligned with Biden in opposing that GOP play, they are divided on Beijing and its control of key markets and materials. Voter suspicion of China has reached historic highs, with a Gallup poll earlier this year showing only 15 percent of Americans have a favorable view of the country, the lowest level since Gallup began polling the question in 1979. It is in stark contrast with five years ago, when a majority of Americans viewed China favorably.

Analysts say Russia’s invasion of Ukraine is playing a big role. It forced politicians and their constituents to reassess the danger of relying so heavily on a geopolitical rival for energy security. After Russia’s aggression resulted in Europe getting cut off from crucial supplies of natural gas and oil, U.S. political leaders began viewing China’s saber rattling against Taiwan in a more sober light. A conflict in the Pacific could leave the West unable to access key materials for its energy transition.

The remedy was the big investment in domestic green energy manufacturing embedded in the Inflation Reduction Act of 2022, which Biden signed last summer. But developing entire industries takes years, and the deployment of green tech in the United States still remains heavily dependent on business relationships with China.

China continues to dominate supply chains for solar, wind and battery technologies. Figures provided by the research firm BloombergNEF show that Chinese companies manufacture more than 80 percent of certain crucial components sold worldwide. They currently make more than 95 percent of the wafers and ingots essential to assembling photovoltaic solar panels.

Sudden penalization of U.S. solar firms for purchasing those supplies, said Ethan Zindler, head of Americas at BNEF, “would be quite disruptive. If nothing else, the sheer whiplash of changing the policy about a year after there were already shifts on this I think would create good deal of confusion in the market.”

The measure before Congress would undo Biden’s two-year pause on the tariffs, which apply to solar cells and panels made by Chinese companies but sold out of Cambodia, Malaysia, Thailand and Vietnam. The White House announced the pause last summer in an effort to reassure the domestic solar industry, which had been paralyzed by a Commerce Department investigation into alleged tariff dodging by Chinese makers of cells and panels.

But in December, Commerce issued a preliminary finding that the Chinese manufacturers were, in fact, dodging tariffs. In response, a bipartisan group of lawmakers introduced a resolution to overturn Biden’s pause, saying China needed to be punished for circumventing U.S. trade law.

The resolution which could pass the Senate as soon as next weekhas put some Democrats in an awkward position. Uncertain as of Tuesday, Sen. Sherrod Brown (D-Ohio) — whose state will soon be home to the biggest solar factory complex outside China — said Wednesday he would vote to restore the tariffs.

“The Chinese government will do anything to undermine American manufacturing, and would like nothing more than to kill the American solar manufacturing industry before it takes off,” Brown said in a statement.

Rep. Richard E. Neal (Mass.), the top Democrat on the House Ways and Means Committee, declined to say how he would vote before discussing the resolution with the conference Wednesday, adding that he was “trying to put together some consensus in our caucus.”

But Sen. Joe Manchin III (D-W.Va.), who chairs the Energy and Natural Resources Committee, said he was fed up with U.S. reliance on China for its energy transition. “I cannot fathom why the Administration and Congress would consider extending that reliance any longer and am proud to join this CRA to rescind the rule,” he said in a statement.

The measure was introduced using the Congressional Review Act, which allows lawmakers to nullify the administration’s decisions with a simple majority vote within 60 legislative days. Many lobbyists and analysts expect the measure to garner the 60 votes needed for most other legislation to pass the Senate — a feat that would require at least 11 Democrats to support it.

Biden on Monday vowed to veto the measure if it reaches his desk, with the White House saying in a statement that it would “create deep uncertainty for jobs and investments in the solar supply chain.” But the solar industry and its allies fear that supporters could reintroduce the proposal as an amendment to must-pass legislation.

“I’m worried that if you give them 60 [votes] in the Senate, Republicans will keep coming back for more bites at the apple,” said a House Democratic aide who spoke on the condition of anonymity because they were not authorized to comment publicly. “They’re going to find every possible way to make us take hard votes on that.”

The Commerce investigation carries the threat of retroactive tariffs. That means if the two-year pause is lifted, U.S. solar developers could be forced to pay a total of $1 billion in retroactive fees, according to the Solar Energy Industries Association. The resulting uncertainty in the industry would eliminate 30,000 well-paying jobs and $4.2 billion in domestic investment, the group has estimated, while 4 gigawatts of solar projects would be canceled, increasing planet-warming carbon emissions by 42 million metric tons.

“It would create such uncertainty,” said John Smirnow, SEIA’s senior vice president of supply chain and sustainability and general counsel. “And it’s really the uncertainty that hammers the markets.”

While there is general agreement such measures would be disruptive, some analysts point out they are coming at a time the United States is also making unprecedented investments in manufacturing components for climate tech domestically.

“We’re about to see a wave of announcements of major new investments,” said James Lucier, managing director of the research firm Capital Alpha Partners. “It is important not to focus too much on this measure in Congress that will almost certainly be vetoed and ignore the positive story from the Inflation Reduction Act.”

But Lucier also cautioned that even a small hiccup in green energy deployment can have major implications for U.S. climate goals.

“If we are looking at solar power being key to reaching the administration’s goal of 100 percent carbon-free power by 2035, that industry can’t afford to lose a year,” he said. “The sense of urgency is coming from solar installers and developers who right now have no practical alternative to Chinese suppliers.”