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The summer has barely started but already Germany is suffering from sunburn. Too much solar radiation amid a heat rash of solar panels, most of which were made in China and dumped, says Germany, at uneconomic prices in the EU. Chinese subsidies are harming EU makers of solar panels, complains the European Commission, and it could become the first big trade dispute to land in the lap of Roberto Azevedo, the Brazilian who has just been elected head of the World Trade Organisation.
It sounds obscure, but the row is over big bucks – some €20-billion ($26.4-billion) worth of solar panels, a commodity which has become the biggest segment of China-EU trade. Ten years ago, Europe imported almost no solar equipment from China, but the EU climate change policies and national renewable energy incentives have encouraged Chinese solar companies to target the EU. Chinese companies now account for 80 per cent of the EU solar market, just as that market heads south.
Germans got drunk on solar, happily quaffing the feed-in tariffs which require utilities to buy solar power generated by the solar panels erected by householders, schools and on almost every roof in Germany. There is enough capacity to supply a fifth of Germany's power, but the lack of sunlight means that solar generation can fall to 5 per cent of grid supply. So ubiquitous are the panels that Germany is the biggest solar market in the world, but the cost of the high tariffs and the inefficiency – due to the lack of sunlight – has encouraged Angela Merkel's government to repeatedly cut the tariffs. New solar installations in Europe are beginning to decline, adding to the pain suffered by German solar panel manufacturers, such as Solar World AG, which is accusing the Chinese of subsidising their domestic industry with cheap loans, land grants and tax incentives.
It's a glorious muddle for the World Trade Organisation to chew over: an uneconomic European industry, dependent on public subsidy, is being exploited by subsidised Chinese companies. It is a moot point whether there is any point in trying to identify a villain, or even a victim.
The new WTO chief will have his work cut out, but this is a dilemma that he will understand well. Mr. Azevedo served as Brazil's trade ambassador, and argued the case for Brazilian sugar cane ethanol against the tariff and subsidy walls imposed by Europeans and Americans in favour of corn and rape-seed biofuels. The elegant solution would be to acknowledge that a power generation technology that requires continuing subsidy is not sustainable but that would be to put common sense before ideology – a solution unlikely to appeal to politicians.
Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights.
Carl Mortished