Global supply chains in solar panels cut costs, add jobs and limit pollution
The “green economy” has become the new buzzword around the globe. To environmentalists, the green economy is about making more sustainable our production and supply chains as well as our consumption patterns. A noble goal. To many politicians, on the other hand, the green economy is synonymous with the competition for green jobs; in other words, with the desire to keep whatever new jobs the green economy generates within territorial boundaries and to protect these jobs as much as possible. Given these radically different goals, confusion can emerge over industrial policy and environmental policy associated with green jobs.
Nowhere is this more visible than in the area of renewable energy, where an emerging economic and trade war has hit the news. In every corner of the globe, politicians and industry are crying foul. Some accuse their trading partners of either artificially incentivising renewable energy production through subsidies linked to the use of locally manufactured equipment and components, or of trying to penalise foreign renewable products through extra duties at the border – in trade jargon, anti-dumping duties or countervailing measures. Both sets of practices, they would argue, are designed to keep green jobs local by subsidising their home-growth and preventing competing imports from coming in and destroying the jobs.
Much of the competition over green jobs ignores the fact that, in today’s world, production chains have gone global. In other words, we no longer live in a world where Product A is entirely manufactured in Country A and then sold to Country B. Rather, most Product As are produced in multiple locations, and if these products are “green”, then the “green jobs” associated with production are equally spread out. Take US silicon modules for solar panels labelled as “Made in the US”; much of the material used in their production – glass, backsheet and junction boxes – are often sourced from China, Japan and Europe. Or Chinese photovoltaic solar cells labelled “Made in China”; much of the equipment used in their manufacture is imported from Germany, Switzerland and the US.
So politicians hoping to boost jobs by forcing local producers to buy local equipment and components, or by penalising entry of competing green goods into their territory, are trying to roll back the clock on increased levels of efficiency and specialisation already attained on a global scale. This was recognised when the US International Trade Commission ruled at the end of 2012 that extra duties to be imposed on imported Chinese solar modules would not apply to any module assembled in China but containing solar cells originating from a third country. The International Trade Commission appeared to be keen to exclude from the extra import duty any US potential exports of solar products to China that would be coming back to the country in the form of imports. In a world of global supply chains, an average country imports roughly 40 per cent of its very own exports. Shooting imports down, therefore, amounts to shooting one’s own foot.
The desire to monopolise green jobs therefore runs counter to the rising tide of global value chains.
Also, in the quest for green jobs, politicians wrongly focus on only manufacture, neglecting the many jobs associated with the green services that are an equally vital part of the green economy – including installation and maintenance. The World Resources Institute has run a wide array of calculations on the jobs generated in the renewable energy economy and their distribution. In the German solar industry, for instance, these calculations show that for every firm involved in solar-module manufacturing, there are more than six firms involved in solar-energy services. More specifically, the services jobs fall in areas such as research and development, solar-panel installation, solar system design, and project management for domestic and international projects. These services jobs are largely dependent on levels of local renewable energy deployment and have significantly increased in the past few years with the boom in installation from around 50,000 to 60,000 jobs in 2008 to an estimated 111,000 jobs in 2011 – this despite numerous complaints about foreign competition for German manufacturers.
In the US, 25 per cent of the 100,000 full-time workers estimated to be employed in the solar power industry are in manufacture. The bulk of workers are involved in R&D, solar-panel installation, project development, sales and distribution, and finance. Similarly in the US wind sector, whereas 33,000 jobs lie in manufacture, 39,000 others are in installation, operation and maintenance. The same proportions hold in many other countries. And herein lies a vital message for policy-makers: the best way to create green jobs is to set environmental targets and then let markets do their job. In the renewable-energy sector, more jobs are created in the actual deployment of clean energy – jobs that by definition can only be local – than are created in manufacture.
While a better understanding of the functioning of global value chains helps demystify the quest for green jobs, it helps demystify another issue as well. China-bashing has now become a popular sport. It is not uncommon to hear in the press every day that China has conquered global solar power production at the expense of countries such as Germany and the US – in short, the theft of green-energy jobs.
The reality, however, is that China is a mere assembly point for various imported components. As the World Resources Institute puts it, few jobs in China have been created in the production of polycrystalline silicon materials because most of the raw materials are imported and over 90 per cent of photo-voltaic products are exported to foreign markets. China has not, by any stretch of the imagination, monopolised green solar-energy jobs. These findings would also affect, of course, the solar energy trade balance between China and the rest of the world, once we realise that what is “Made in China” is actually “Made in the World”.
The message is simple: in today’s highly interconnected world, protectionism simply does not protect. If the price of a solar panel today has fallen to fraction of what it was before, and we know it halved in 2011, the response should not be to search for ways to keep foreign solar panels out of domestic markets and thereby raise their prices once again. Rather, we should be trying to boost demand for solar power so it matches panel supply. And the best way to do so is through stable and well-designed renewable-energy deployment policies. Environmental targets, and not job targets or trade protectionism, should be the way forward.
Doaa Abdel Motaal is deputy chief of the World Trade Organisation and advisor to the director-general on environmental issues.
Yale Center for the Study of Globalisation.