India has been told that it cannot go ahead as planned with its ambitious plan for a huge expansion of its renewable energy sector, because it seeks to provide work for Indian people. The case against India was brought by the US.
The ruling, by the World Trade Organisation (WTO), says India’s National Solar Mission − which would create local jobs, while bringing electricity to millions of people − must be changed because it includes a domestic content clause requiring part of the solar cells to be produced nationally.
Source: Climate News Network (Hat tip to Bill Harvey)
The World Trade Organization rules that governments can’t subsidize infant industries because subsidies are trade barriers. The theory is that they are equivalent to tariffs because they give the home team an advantage.
WTO rules have been used to penalize solar and renewable power industries in the United States, Canada, China and other countries.
The problem with this is that once a particular nation or business monopoly has established dominance, it is very difficult for a newcomer to break in. That is why almost all industrial nations that came after Britain developed behind tariff walls, and why leaders of Britain, the first industrial nation, advocated free trade.
The dominant national industry or business monopoly enjoys greater advantages than just efficiency of scale. It has financial reserves that enable it to ride out downturns in the market.
Dominant industries also have the financial power to sell at a loss if necessary to undercut competition. This is called predatory pricing, which is forbidden under international treaties, but not always enforced.
So is dumping, which means covering your fixed costs in your domestic market, and selling at a marginal cost (the extra cost in ramping up production) in foreign markets.
The problem is that predatory pricing and dumping are difficult to prove and difficult to enforce.
In the fossil fuel industry, the economic incentive is to maintain your market share even if you sell at a loss. You’ve already spent the money to acquire the coal, oil or gas, and by selling at a loss rather than leaving it in the ground, you at least get some of your investment back.
If the community of nations really is committed to renewable energy and mitigating climate change, governments must rescind or revise treaty obligations that block national policies that help or favor renewable energy.