Featured case: Shaping the Future of Solar Power:
Climate Change, Industrial Policy and Free Trade

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The case

Who – the protagonists

President Barack Obama who, unlike his predecessors, pursued a deliberate focus on renewable energies.

ObamaWhat?

The Obama administration was looking to make ‘critical investments’ in a wide range of renewable energy industries such as solar and wind, and estimated that its policies and programmes would help create more than 800,000 clean energy ‘job years’ by 2012.

Why?solarpanel.jpg

The President believed that supporting home-grown, clean energy ventures was an elegant solution to a range of challenges plaguing the US economy, including heavy dependence on foreign oil, high unemployment and rising greenhouse gas emissions.

When?

In 2009, as part of the ‘stimulus bill’, the Obama administration allocated 90 billion dollars for clean energy. However, in 2011, Solyndra, a California-based solar panel maker who had benefited from government subsidies, filed for bankruptcy – a major embarrassment for the Obama administration which had invested billions of dollars in government loan guarantees to promote renewable energy companies like Solyndra.

solarpanel2.jpgWhere?

Complex and often competing agendas on climate change, industrial policy and free trade had placed solar energy at the centre of a high-stakes battle between the two economic superpowers of the United States and China.

Key quote

‘We will harness the sun and the winds and the soil to fuel our cars and run our factories.’ – Barack Obama, from his inaugural address.

solarpanel2.jpgWhat next?

The Chinese government had outpaced the US in providing loan guarantees and subsidies to solar manufacturers and helped transform the country’s nascent solar manufacturing industry into a world leader. America responded by complaining to the World Trade Organisation and imposing penalties against Chinese solar panel manufacturers.

However, neither country could withstand 2012’s massive downturn in the solar market and the huge supply-demand imbalance was expected to affect solar businesses around the world. How would the thorny interplay between subsidies and demand for solar panels eventually alter the solar industry’s future?

 
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Shaping the Future of Solar Power: Climate Change, Industrial Policy and Free Trade
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Teaching note
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The authors
Authors

Robert Lawrence and Anjani Datla

Robert discusses how motives can conflict and the complexities of government industrial policies.

Conflicting goals

This case reveals that the motives behind policies are not always simple. The Obama administration wanted clean energy, but at the same time it also sold the programme as creating jobs and making the US more competitive. The case brings out how these goals can conflict. If the goal was simply clean energy then perhaps the US should have thanked the Chinese for their subsidies rather than challenging them at the World Trade Organisation.

Positive examples

There are some examples of successful government subsidy on which Obama could have modelled his subsidy of solar power. For example, the US government has done well in its subsidies for agricultural research and national health research. These examples show that it may be more appropriate to focus on basic and applied research generally, rather than supporting particular firms.

Complexitiessolarpower

The case illustrates the complexities of government industrial policies, especially when governments try to act as venture capitalists. Unlike the private sector, in which only a few of many projects are expected to succeed, the government has problems when it invests in risky projects that fail.

Learning objectivessolarpower

The aim is to explore:

  • policies to limit climate change
  • the debate over industrial policies
  • the tensions between efforts to deal with climate change and efforts to maintain an open trading system
  • the degree to which the US and China compete with or complement each other.

The case also makes clear that products such as solar panels are made in global supply chains rather than in just one country; the result is that when countries try to block Chinese products they sometimes hurt their own domestic producers who contribute to those products.

The most important message is that good policy requires being precise about your goals, and having at least as many instruments as targets, whereas good politics often means claiming your policy will achieve many things.

About the authors

Robert Lawrence is the Albert L. Williams Professor of International Trade and Investment at the John F. Kennedy School of Government at Harvard University.
robert_lawrence@Harvard.Edu

Anjani Datla is a Senior Case Writer at the John F. Kennedy School of Government at Harvard University.
anjani_datla@hks.harvard.edu

 

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