On Wednesday, a group of 15 environmental groups sent a letter to the U.S. Trade Representative, cautioning against disputing India’s solar policies in the World Trade Organization:
“We see troubling signs that climate policy may increasingly be determined by the WTO and similar arenas based trade law rather than on climat e science and the real-world necessities of building a green economy. We urge the United States to not bring forward this case, and to agree to a solution that allows India to support and build its domestic solar industry, just as we must do at home.”
The letter was written because the United States is threatening to sue India for local content requirements that discriminate against foreign solar technology providers. While trade rules do not prevent countries from supporting renewable energy, they rule out policies that favor domestic producers.
Since I am a treehugger, for me the most interesting questions in this case pertain to the environmental consequences of the decision. If the United States went ahead and challenged India, would this promote the use of clean, renewable energy? Or, would it not?
The green groups seem to believe that trade disputes could undermine India’s progress toward a solar future. This argument has two main components. First, India may need a vibrant solar industry to achieve major gains in the long run. Without a domestic industry, technological learning is difficult, if not impossible. Second, the political feasibility of more aggressive policies in the future may require a domestic constituency that expects profits. If India is not allowed to favor the nascent domestic solar industry, such a constituency may not emerge in India.
On the other hand, the United States can also rely on environmental arguments. If India is not allowed to discriminate against foreign producers, the best technology available on the global market will be used for solar energy deployment. This, in turn, allows India to maximize the cost-effectiveness of solar energy. Enhanced cost-effectiveness reduces costs and, in so doing, can also contribute to political feasibility.
Of these arguments, I find the one that my fellow treehuggers are offering more compelling. If one looks at the growth of renewable energy policies in different countries, it is hard to avoid the conclusion that the renewable energy industry — the businesses and the employees — did not play a key role in the political conflicts over renewables. India’s solar industry must grow and become powerful for solar policies to survive over extended periods of time. I am sympathetic to the trade arguments, but my own intuition is that the environment would benefit if the United States exercised some political restraint in this case.
In the long run, of course, a better institutional solution is needed. International trade rules are not really designed to address the challenge of creating clean technology industries. A sustainable energy trade agreement could help the international community strike the balance between the political imperative of constituency-building and the need to avoid high levels of protectionism and discrimination.