Miguel Afonso Caetano

"Governments worldwide face mounting pressure to simultaneously expand domestic clean energy industries and accelerate decarbonisation. Recent policies combine subsidies for clean technology with various protectionist measures, including domestic content requirements and tariffs on imports. Yet, evidence from the solar sector suggests tariffs undermine rather than support climate objectives.

Since 2012, the US has imposed substantial tariffs on solar panels imported from China. The EU erected related trade barriers on solar panels before lifting them in 2018. More recently, the US and EU have imposed tariffs on Chinese electric vehicles. These actions illustrate a policy tension: even as governments commit to rapid decarbonisation, protectionist measures raise the cost of deploying the clean technologies needed to achieve climate goals. Recent research helps illuminate this conflict and points toward better policy approaches."

https://cepr.org/voxeu/columns/beyond-tariffs-better-approach-green-industrial-policy

#USA #China #GreenTransition #GreenIndustrialPolicy #Tariffs #TradeWar #Protectionism #BigOil #Decarbonization #FossilFuels

Beyond tariffs: A better approach to green industrial policy

Governments impose tariffs to protect domestic clean-energy industries and accelerate decarbonisation, but tariffs can increase the costs of deploying clean technologies. This column analyses the effect of tariffs imposed by the US on Chinese solar panel imports since 2012. In response, Chinese firms relocated production to countries not subject to the tariffs. The result was higher solar panel prices in the US and a decline in employment and wages in the US solar industry. The authors suggest that subsidies would be more effective in supporting domestic industries and climate action, correcting market failures rather than simply redistributing rents.

CEPR
Jan 31 at 2:16pmWeb
Show threadMiguel Afonso CaetanoJan 31

"We estimate significant declines in US consumer surplus as buyers faced higher costs. Domestic manufacturers captured modest gains in profits and market share. The federal government collected tariff revenues. However, when accounting for all welfare components – including the environmental benefits from solar deployment – we find that domestic welfare declined.

The tariffs also reduced total US employment and wages in the solar industry. Installation and related sectors lost more jobs than manufacturing gained, consistent with research showing that tariffs on intermediate inputs harm downstream employment (Trimarchi et al. 2021, Strain 2025). This result contradicts a common justification for solar tariffs: protecting domestic jobs."

Show threadMiguel Afonso CaetanoJan 31

"The solar tariff experience offers three lessons for green industrial policy design.

First, instrument choice matters profoundly. The same level of domestic production support can yield vastly different welfare effects depending on whether it comes through tariffs, subsidies, tax credits, or procurement requirements. Policymakers should evaluate policies not only on their ability to achieve industrial targets but on their overall impact on welfare and climate goals.

Second, market failures should drive policy design. The economic rationale for green industrial policy rests on correcting specific market failures – environmental externalities, learning spillovers, technology spillovers, or coordination problems (Gerarden et al. 2025b). Effective policies target these failures directly. Subsidising production to capture learning benefits and support deployment can address actual market failures. Tariffs primarily redistribute rents without correcting fundamental distortions.

Third, trade-offs between industrial and environmental objectives are not inevitable. With appropriate instruments, these goals can be mutually reinforcing. Production subsidies combined with deployment incentives and carbon pricing could expand both domestic industry and clean energy adoption. Tariffs often pit these objectives against each other."