Tariffs to slow growth in domestic demand for PV systems: The Brattle Group

Recently, The Brattle Group came out with its report titled "The Employment Impacts of Proposed Tariffs on Chinese Manufactured Photovoltaic Cells and Modules". Here are excerpts from the report.

At the request of the Coalition for Affordable Solar Energy (CASE), The Brattle Group has studied the employment impacts of a proposed trade restriction on Chinese-manufactured crystalline photovoltaic cells and modules.

This topic is timely, because the US Department of Commerce (DOC) is currently reviewing a petition that would lead to substantial tariffs on Chinese-produced photovoltaic cells and modules. Petitioners have requested tariffs up to 250 percent on Chinese-manufactured products in response to alleged government subsidies and below cost pricing.

In brief, we estimate that tariffs will slow the growth in domestic demand for photovoltaic systems by homeowners, commercial establishments and utilities, resulting in substantial job losses. We estimate jobs at risk under two tariff levels – 50 percent or 100 percent.

We find that a 50 percent tariff will shut the vast majority of Chinese imports out of the US market, and a 100 percent tariff will effectively block them altogether. We also estimate employment impacts accounting for two scenarios, a low scenario which assumes low demand elasticity and high supply elasticity, and a high scenario which reflects a high demand elasticity and a low supply elasticity.

* We expect that on average module prices would be higher than currently projected over the next three years by roughly 25-30 percent. Price increases of this magnitude may provide some assistance to domestic producers facing a highly competitive market, but at the same time will harm consumers, resulting in a drop in overall domestic demand.

* A tariff of 50 percent will result in between 14,877 and 43,178 fewer jobs in 2014, even accounting for production job increases.

* A tariff of 100 percent will result in between 16,917 and 49,589 fewer jobs in 2014, even accounting for production job increases.

* In addition, the Chinese government may retaliate if a tariff is imposed on its cells and modules by imposing a tariff on US products, polysilicon a key photovoltaic (PV) material. In 2010 the US exported approximately $863 million of polysilicon products to China. A reduction in demand of this magnitude could result in additional job losses of 10,881, bringing the total job losses up to as many as 60,000. Losses would be even greater if exports continue to grow as expected. Additionally, we have not accounted for retaliation on US export of PV capital equipment, which could lead to even further job losses.

* These estimates reflect the assumption that PV costs will continue to fall as technologies improve, further efficiency gains are made in production and installation, and existing incentives and targets remain in place. Should the rate of these improvements slow or fail to materialize or existing incentives run out of funds, the negative impacts of the tariff on employment would be significantly greater.

* Finally, the economic basis for evaluating an import tariff is whether there is a gain to both consumers and producers. We estimate that consumers lose more than producers gain, resulting in a net revenue loss of between $621 million and $2.6 billion.