SDRS stands for “subsidize demand, restrict supply.” This public-choice model of policy applies to solar panels, where the restriction on supply comes in the form of a possible tariff.
SDRS stands for “subsidize demand, restrict supply.” This public-choice model of policy applies to solar panels, where the restriction on supply comes in the form of a possible tariff.
For this model to mean anything, “subsidize demand, restrict supply” has to be the intent of a policy. This is an accident. The Trump administration would be hostile overall to the idea of promoting solar. It would not favor subsidizing demand. That was in place and the administration just hasn’t gotten around to attacking it.
This is just a policy shift by a new administration.
Seems to me in healthcare and housing it is different levels of government subsidizing and restricting. The Federal Government because they represent all the people in the country like to subsidize healthcare and housing. Also they can do it because they can tax more because it’s hard to move to another country. The states tend to restrict supply to raise wages and home values in the state because that represent the instate interests and would just assume drive less affluent people from the state.
So I think since there are natural incentives involved it is a very meaningful idea, a principle.
Good point.
So is the real insight just that the Federal Government and States have different and often conflicting goals? Doesn’t “subsidize demand, restrict supply” always occur when two overlapping jurisdictions have conflicting goals?
I think the idea is that ‘subsidize demand, restrict supply’ is a likely outcome regardless because this formula is the one that most benefits insiders. The existing suppliers benefit from the reduced competition that comes with supply restrictions and the politicians can lock in votes with subsidies.
But we’ve had trade restrictions for green energy for awhile, including during the Obama admin; and green energy companies lobby for protection.
Also, I don’t see why SDRS has to be intentional. Indeed it probably almost never is intentional. It occurs because subsidizing demand is popular with consumers while restricting supply is popular with established producers. No one sits down and says ‘lets restrict supply while subsidizing demand.’ Rather, any attempt to open up supply gets shot down; so what your left with is ‘SDRS.’
The question to ask is why panels from China should be so much cheaper. Like lithium batteries, these are highly capital-intensive products that are made in giant, heavily-automated factories for which most of the cost is derived from commodity materials that available anywhere on earth for similar prices. Borrowing capital to make solar panel factories in developed countries has got to be super cheap, so why should China have such a competitive advantage?
There are only two likely answers, and both of them justify the tariff.
One is “dumping”, and yes, a lot of free market types think the accusation is invalid and/or incoherent because lower priced products from abroad are supposed to be some kind of unblemished “gift” from (apparently foolish) foreign companies if acting on their own, or equally misguided foreign governments if subsidizing exports, just like we’re supposed to put on “What, me worry?” faces about Amazon pursuing long-term strategies to accept short-term low profits to push smaller competitors out of business and establish market dominance, after which they might raise prices to a healthier margin. The problem is that this strategy sometimes works, because there is a lot of institutional value and organizational capital in a “going concern” and a lot of asymmetry between what it takes to close vs. open a business, especially if one faces the prospect of the same kind of crushing response from the big players.
The other explanation is “regulatory advantage”. That is, it takes a huge amount of fossil energy to smelt and carbothermically (or electro-catalytically) reduce silicon and then produce good semiconductor crystals through the Czochralski process. If one has access to cheap heat and is allowed to burn dirty at low cost, then one has a huge competitive advantage over manufacturers in every economy with stricter environmental regulations. This is actually China’s major advantage across a whole spectrum of industries closely connected to energy-intensive production, for example, cement, glass, aluminum, etc., and is particularly foolish and unfair when the regulations in developed countries are focused on CO2 emissions (since the purported harm depends on global levels), but there are no equalizing taxes placed on CO2-intensive imports.
In this case, a tariff is justified to level the playing field between domestic producers and foreign competitors. One doesn’t often see universalist utilitarians argue in favor of these tariffs because foreigners are entitled to clean air and water and lower CO2 levels too.
Anyway, one thing to notice from the article is the cost of those panels, the all-time low was $320 per kilowatt capacity, which typically produces 1,300 kilowatt-hours a year (in good conditions). That would produce a dividend of about about a third of the cost of the panels every year, but of course the production is not necessarily when you need it, and the utilities would never buy that unneeded electricity “back” if they weren’t forced to do so by law. (The best case use is still in hot, sunny environments running air conditioners at midday.)
Of course that’s not the installed cost, and battery storage to buffer production and consumption would cost a lot more. But at those prices, and today’s low interest rates, we may indeed finally be approaching the point in a few years where a solar set-up at a typical detached suburban house in the right spot and climate could actually pay for itself in terms of saved utility costs without cash or regulatory subsidies. Still, commodity costs create a hard floor on such prices, and it’s by no means clear whether that floor will be above or below fossil-fuel-derived electricity costs when the sector eventually exhausts its capacity to economize on panel production.
Both of your answers seem like great justifications for deregulation but lousy justifications for tariffs.
I’d prefer deregulation, but in its absence, the tariff is better than no tariff.
Imagine making a 2×2 matrix. A is Regulation, B is Tariff. The “~” tilda symbol is “not”.
In terms of social value, I would rank them from best to worst as follows:
1. ~A~B (free trade, competitive domestic industry)
2. AB (regulation-compensating tariffs, competitive domestic industry)
3. ~AB (over-protected domestic industry)
4. A~B (no domestic industry)
We are at or approaching TradeCon-4, and some people are arguing we should stay at 4 instead of jumping to 1 or 2! Well, sorry, but that’s nuts.
There is also the issue of quality. PV, like most things, will degrade if left out in the sun. American commercial grade PV will last about 40 years; Chinese PV, about half that.
SDRS stands for “subsidize demand, restrict supply.”
Is this the greatest way to protect natural gas and coal? And the US producers have a sympathetic President that promised more US manufacturing and increased coal usage in which this policy, ugly as it is, does both for him.
Panels are going up all over the place in California which looking to close down a huge coal generation plant in AZ, the Navajo power plant. To be honest, California power generation and sales is complete Fuckin’ mess as solar is generating too much power, the nuclear plant is running at 1/3 capacity and the prices are through the roof.
1) Realize a California prospective solar buyer is using SCE or PGE prices to compare not the generation price. (My solar panels save net $100/mo after increase in mortgage and will pay back in ~8 years without tax subsidies.) So simply arguing power generation of coal or natural gas is lower is not what consumers see.
2) Frankly after the Fukushima earthquake in 2011 I am not sure why we have a nuclear plant still running.
> One doesn’t often see universalist utilitarians argue in favor of these tariffs because foreigners are entitled to clean air and water and lower CO2 levels too.
Duh. It would make their iPhones, not to mention the fitness and wellness gadgetry – sleep monitors and suchlike crap – much too expensive.
Actually, difference in environmental regulations may not be the most important factor. What about the difference in demographic pyramids? Barring pathology, a society with 3:1 dependent ratio is going to have very different characteristics than a society with 1:3 ratio. If the former exported to the latter, it could have lower labor prices and essentially export its “demographic dividend”. What about the difference in the scope and size of the various non-tradable low-productivity sectors? (Paging Handle.) A country with inefficient healthcare and education will be at a disadvantage because it will have to overpay its labor so it can purchase the services their opposite numbers can obtain cheaper. What about the difference in the extent to which Great Centralization affects each country? (Paging Handle again.) I gather that one of the comparative advantages of Germany in high-tech manufacturing is that Germany has somehow avoided having its high-tech enterprises coalescing into a small area with exploding housing costs. Such factors as these three strike me as potentially much more influential than difference in environmental regulation (isn’t labor costs usually the biggest item?), and much less tractable should a country decide to improve its competitive position.
The big question is, “Where do we site production?”
My view is that any industries that produce fungible products traded internationally (which is of course the usual context for any issue involving tariffs), and with labor being a substantial component of the total costs of all inputs, and in the absence of some significant protectionist intervention or political distortion, are already long gone.
So that means other, non-labor considerations necessarily start to dominate in terms of differences in international competitiveness for any industries that are left. And since demographic distributions and local “human maintenance costs” like health care and housing are directly related to labor costs, we can mostly ignore those too when analyzing these differences in the industries that remain.
This especially applies to those industries that are particularly capital intensive, highly automated, highly commodity-price-dependent, and with particularly low marginal cost of labor per unit output. Perhaps a caricature of this would be some giant robot factory that eats up plastic on one end and spits out plastic eggs on the other.
But if the costs of transport to or from anywhere in the world are negligible for both the inputs and outputs, then the question of where to put the factory can only depend on some local peculiarity, of which there are only two general types: natural and artificial. Obvious natural peculiarities could be latitude and water as related to agricultural production (Sugarcane, Coffee, Pineapples, etc.), geographic factors of production which were of course major drivers of History. Another example could be particularly cheap and plentiful hydroelectric and geothermic energy source with low domestic demand, which is why heavy bauxite is shipped all the way from Brazil to be smelted into aluminum in Iceland.
Now, China has huge amounts of cheap coal, but then again, so does the US and Russia, so it isn’t that. Thus, here we are talking about the artificial features, which could generally be called “State-dependent costs of doing business”. Let’s call those SDCODBs.
When we notice big price international price differences for these big robot factory scenarios, then unless it’s private sector “dumping” (and in China we need scare quotes around “private sector” anyway), we have to conclude there is some big difference in the SDCODBs.
When a, say, American sector faces a competitive disadvantage in international trade because of different SDCODBs, the question is, is it proper for the US government to proportionally protect that sector to level the playing field and not put it at an unfair disadvantage?
And I would say yes it is. In fact, I can present a legal argument to this effect that is fully consistent with the Constitution and libertarian principles.
The basic concept is “Takings”, as in the 5th Amendment: private property shall not be taken for public use without just compensation.
But what if I technically leave title to the property in your hands, but regulate your use and enjoyment of it to substantially diminish its market value? Well, that’s a “Regulatory Taking”, and, unfortunately, but also typically, the jurisprudence regarding that matter is hopelessly confused. But even in American jurisprudence, a generally agreed upon principle is that if the state takes nearly all of the value of your property via regulation (but without prohibiting the activity itself as illegal), then that is a taking, and it must pay the owner just compensation.
And my argument is that when American SDCODBs are so high that they will force all companies in an entire sector into liquidation bankruptcy, then that is the equivalent of taking nearly all of the value of that property, and so the government is not only justly permitted to compensate those companies, it is Constitutionally obligated to do so.
And therefore, the real question should be of what form ought this compensation to take?
And I would argue that the economically optimal form is via a tariff, because industries evolve and regulations change, but once sectoral expertise has disappeared it is much more difficult and costly to “reshore” or reconstitute domestic industries than to have kept at least the equivalent of a domestic “cadre” viable as going concerns.
Obviously tariffs present problematic political issues that are hard to solve, like setting the appropriate levels and minimizing corruption and abuse that will help the domestic companies too much. But the regulations that increase the SDCODBs that make these tariffs Constitutionally required are also susceptible to all kinds of political problems that hurt those domestic companies too much. The consistent positions are “High SDCODBs but compensatory tariffs” or “No tariffs, but competitive SDCODBs.” The worst of all worlds and deeply unfair answer is, “High SDCODCs, but since it’s too hard politically to do anything about those we’ll just accept them as given and continue arguing for no tariffs.”
And, as I’ve argued, that answer is both unconstitutional and inconsistent with libertarian principles related to natural legal rights in private property as against state taking.
Handle, do you write stand-alone pieces anywhere? Your presentations are logical and coherent, your arguments persuasive. That your opinions tend to jive with mine (although so much better fleshed out!) of course has *nothing* to do with wanting to read more of your work. 😉
Anyway, I always look forward to your comments here. Thank you.