What happens when China and the United States clash in a subsidy-fueled solar panel arms race? The world gets a lot more solar panels than anyone wants to buy, manufacturers go bankrupt, and taxpayers get stuck with the tab.
Will the recent bankruptcy of subsidized Chinese solar giant Suntech Power cause the Obama administration to tone down its argument that we need to match China's solar policy?
"As long as countries like China keep going all in on clean energy, so must we," President Obama said in his 2013 State of the Union. This is a typical refrain in Obama's industrial policy.
In a 2010 address at Georgetown calling for more green energy subsidies, Obama said "the countries that lead the 21st-century clean energy economy will be the countries that lead the 21st-century global economy. I want America to be that nation. I want America to win the future."
John Kerry, now Obama's secretary of state, has sounded the same note for years, saying in 2011: "[W]e should be thinking about competing with China to win the next energy revolution. Why? Because the race is on to put the right policies in place so hundreds of thousands of new, good-paying renewable energy jobs will be created here, and not in China."
There's some interesting economics and rhetoric going on here. On one level, the Obama-Kerry line is not so different from the 1970s-vintage liberal view that America needs to emulate Asia and Europe. But that sort of talk doesn't fly with the average American swing-state voter, and so Obama has turned the rhetoric on its head: We can't let China or Europe beat us at solar panels!
But this skips a question that needs asking: Why should we want to win the solar panel-making race? If China wants to sell us subsidized solar panels, why should we begrudge them that? And if solar panel factories need subsidies in order to survive, doesn't that signify that this industry doesn't add value to the economy?
This month's Suntech Power bankruptcy is the latest piece of evidence that the solar arms race is not one worth winning.
Suntech, enjoying a $16 billion market capitalization at one point, declared bankruptcy for its main operating unit. Suntech's problem was the same problem facing the whole industry: Materials costs are going up, and solar panel prices are going down. The diagnosis is easy: overproduction. The cause is obvious: oversubsidization.
Suntech, like all Chinese solar panel makers, has enjoyed generous subsidies from the Chinese government. The Obama administration has chipped in, too, awarding a $2.1 million tax credit to reward Suntech for opening a manufacturing facility in Arizona.
But Suntech's subsidies didn't stop there. In 2010, Suntech was the first beneficiary of Arizona's Renewable Energy Tax Incentive Program, getting a $1.5 million credit. The city of Goodyear, Ariz., awarded $500,000 to Suntech for worker training, bringing the U.S. total to $4.1 million in subsidies. Last week, Suntech announced it is closing the Arizona plant -- its only U.S. factory -- and laying off all the workers there.
For a solar company, subsidies lie around every corner.
The Energy Department hands out taxpayer-backed loan guarantees for the manufacture of solar panels and other renewable energy equipment. Solar manufacturer Solyndra famously got a $537 million loan guarantee before going bankrupt.
Uncle Sam, through the Treasury and Energy departments, also gives out Advanced Energy Manufacturing Tax Credits -- $2.3 billion in Obama's first term.
The U.S. Export-Import Bank in 2010 launched Solar Express to expedite taxpayer-backed financing for solar exports. Ex-Im that year awarded $455.7 million in loan guarantees to First Solar in Canada so that it could buy Ohio-made solar panels from itself.
Then there are straight-up federal grants. SolarWorld (which also got Solar Express Ex-Im financing and Advanced Energy Manufacturing Tax Credits, plus plenty of Oregon subsidies) pocketed $2.4 million in Renewable Energy Research and Development Grants. DOE has given out $5 billion in those.
Treasury has given $4 billion in Section 1603 grants (named for their section in the 2009 stimulus bill) to property owners who install solar panels. Throw in the Production Tax Credit that Congress just renewed, and boatloads of state-level subsidies, and you've got tens of billions in U.S. subsidies for solar power.
If you subsidize something, you get more of it. So even though installing solar panels is also subsidized, supply has far outstripped demand. The result is a string of solar company bankruptcies and solar factory closings.
Maybe Suntech's collapse will cure Obama of his China envy, and he will realize the solar race isn't worth the entry fee.
Timothy P.Carney, The Examiner's senior political columnist, can be contacted at email@example.com. His column appears Monday and Thursday, and his stories and blog posts appear on washingtonexaminer.com.