India’s programme to ramp up generation of solar energy, crucial for cutting down its heavy dependence on coal, has been undermined by the United States. The National Solar Mission, which was expected to push up the contribution of renewable energy to the country’s power generating capacity, has become enmeshed in the double standards practiced by the US and the skewed global trade rules on clean energy.

Reports from the World Trade Organisation in Geneva say the apex trade policing body has upheld the US challenge to India’s solar policies that prescribes local content requirements under the Jawaharlal Nehru National Solar Mission. The US had complained to the disputes settlement body of the WTO, first in 2013 and then again in 2014, that New Delhi policies were not consistent with global trade rules. US Trade Representative Michael Froman charged India with discriminating against American companies by imposing local content requirements in supply of solar cells and modules to solar energy projects which amounted to denial of “national treatment” to them. Under WTO rules, national treatment means members treat foreign companies on a par with domestic enterprises.

Washington had also complained that India provides subsidies to solar power developers under Phase II of the Jawaharlal Nehru National Solar Mission. The government gives subsidy of up to Rs 1 crore per megawatt to developers who set up large solar capacities – the investment cost is a whopping Rs 8 crore per MW – by placing orders with domestic manufacturers for solar cells and modules. Such projects are also guaranteed long-term tariffs for electricity if they buy locally equipment of domestic origin.

Trade hypocrisy

Although the US would appear to be following WTO rules in its case against India, the case has cracked wide open the trade hypocrisies practised by Washington. Two issues emerge from the many disputes involving renewable energy at the WTO.

One, the US gets away with trade violations by carefully nurturing its own industry by providing similar, but more shrewdly designed, subsidies to solar manufacturers at the federal, state and local level. In fact, after the US moved its second complaint at the WTO, the then Commerce Secretary Rajeev Kher had accused the US of being protectionist on solar equipment. Kher was quoted by news agencies as saying: “We have clear evidence of, I think, 13-odd states which follow equally restrictive policies. So we are examining their policies.” These include investment tax credit and disputed local content policies. India has repeatedly brought this up at WTO committee meetings to discuss subsidies and countervailing measures in general.

Two, while Washington makes much noise about the subsidies of developing nations, it imposes dumping duties on imports from such countries – such as China and Taiwan – that offer cheaper and more competitive products. For instance, the US had not only objected to China’s subsidies to manufacturers of wind power equipment, it had also imposed countervailing duties – these are additional tariffs to offset subsidies – on Chinese solar equipment. However, China, unlike India, has taken on the US effectively.

Hampering climate action

With mounting concern over climate change and the urgent need to cut emissions from coal-based energy, a number of organisations have been highly critical of the US decision to take India to the WTO. The American environmental organisation Sierra Club, for one, has denounced both the US and the “outdated trade rules” of WTO.

In a statement issued in the wake of the WTO ruling at the end of August, Ilana Solomon, director of the Sierra Club’s Responsible Trade Programme, said the WTO needed to get out of the business of hampering climate action in countries around the globe. “Today, we have more evidence of how free trade rules threaten the clean energy economy and undermine action to tackle the climate crisis,” she said.

As for the US, she said, “it should be applauding India’s efforts to scale up solar energy – not turning to the WTO to strike the programme down,” because India’s solar policy “will help reduce its reliance on dirty coal and spur the development of new clean energy jobs”. Thermal sources, primarily coal, account for almost 70% of India’s total power generating capacity of 275,912 MW, whereas solar is just 4,100 MW. The Jawaharlal Nehru National Solar Mission was launched by the Manmohan Singh government in 2010 to ramp up solar as quickly as possible.

American doublespeak

But this clearly is not a concern for the US. Given its determination to promote American manufacturers there was a fine irony in the joint statement issued by Barack Obama and Narendra Modi in January 2015 during the US president’s visit to India.

The statement says:
“President Obama and Prime Minister Modi emphasized the critical importance of expanding clean energy research, development, manufacturing and deployment, which increases energy access and reduces greenhouse gas emissions. The leaders announced actions to advance India’s transition to low carbon economy. India intends to increase the share of use of renewable in electricity generation consistent with its intended goal to increase India’s solar target to 100 gigawatts (or 100,000 MW) by 2022. The US intends to support India’s goal by enhancing cooperation on clean energy and climate change.”

That goal is ambitious. China already boasts nearly 36,000 MW of solar energy and is planning to touch 100,000 MW by 2020. With the limited funds available to it, the Jawaharlal Nehru National Solar Mission is providing subsidies to just a small portion of its huge target. According to an analysis by the Centre for Science and Environment in Delhi, the local content applies in a limited way in the three batches of solar power projects the mission has announced so far.

In the first batch, 50% of 750 MW is reserved for local content, reducing substantially to 33% (500 MW out of a total 1,500 MW) in the second phase and to a mere 10% in the third phase  2,000 MW. This would mean that the US campaign is aimed at just 1,075 MW or 0.37% of the total solar target in the second phase.

In any case, the country’s manufacturing base for solar energy is pretty small, with capacity for solar cells limited to 1,386 MW and that of solar modules to 2,756 MW.

India versus China

Officials say India will be challenging the decision of the WTO body which has yet to be made public. But there is disquiet about the way New Delhi has handled the case so far. Trade experts are critical of India’s reluctance to file a counter complaint against the US on the subsidies it provides, not just for solar but to the entire renewables programme. Nor has the country initiated action against the US for a widely acknowledged violation of trade rules: dumping its solar equipment on India.

India’s pusillanimity is in sharp contrast to China’s aggressive stance. Beijing has successfully challenged the anti-dumping and countervailing duties on Chinese solar panels imposed by the US, with a WTO ruling in July 2014 declaring that the US actions amounted to illegal protection of its own solar producers. Responding to the ruling, China’s Ministry of Commerce said: “China urges the US to respect the WTO rulings and correct its wrongdoings of abusively using trade remedy measures.”

India, on the other, appears to be caught in a peculiar bind. One of the strongest testimonies made to the US Congress to use the WTO to get India to change its “demonstrably protectionist” policies such as local content requirement came from Arvind Subramanian, then senior fellow at the Peterson Institute for International Economics and Center for Global Development in the US. The economist suggested to the US that the WTO route would be the best recourse for getting India to change what he described as the country’s “sudden and enthusiastic embrace of localisation”.

That was in 2013. Today, as the chief economic adviser to the Narendra Modi government, Subramanian is in the opposite camp where he needs to support the prime minister’s “Make in India” policy. Will he advise a sharp riposte to the US at the WTO?