China’s solar power shock and protectionism.

Over the last few decades the rapid decline in the cost of solar power has seen it as a definite alternative to fossils fuels. Since the 1950’s its cost has declined by a factor of almost 100 and epitomises successful green innovation with government backing. Figure 1 shows how the costs have fallen between 1965 and 2016 as well as the rise in deployment starting in the early 2000’s. The increasing economies of scale has been driven by lower material costs, technological innovation and global competition especially from China.

The energy sector is responsible for approximately two-third of global greenhouse emissions but China’s dominance in the field of solar energy production has led to protectionist anti dumping tariffs from both the US and the EU. Dumping is where supply from China is sold in the EU and US markets at a price which is below the domestic price. The tariff on the import increases the price so that it is above the domestic price – see graph.

These protectionist measures were the result of industry lobby groups protesting at the unfair advantage that their Chinese counterparts have with government subsidies. The competition from China meant that in the EU there was an increase in patenting as well as some solar sector industries being put out of business. Those that survived had to be very innovative which in turn leads to greater efficiency.

The dominance of China in the sector is clear from the 2022 data. China accounted for:

• 76% to 96% of installed manufacturing capacity of all solar PV components

• 64% of global manufacturing capacity in nacelles (housing that protects the blade)

• 69% of capacity for blades

• 80% of production capacity for batteries

The response from the US and EU is more protectionist measures which set out a percentage of locally made components for government support. In May 2024, the Biden administration raised tariffs on Chinese electric vehicles to 100%, lithium-ion batteries to 25%, and solar cells to 50%. In 2024, the European Commission imposed tariffs on Chinese electric vehicles of 17.4%-37.6% in July and additional tariffs of up to 35.3% in October, on top of the EU’s standard 10% car import duty.

These protectionist measures will add to the cost of using low-carbon technologies and therefore act as a brake in slowing the impact of climate change. The Trump Administration has already made it clear that they intend to implement tariffs on imports and have also withdrawn the Paris Agreement on climate change. This will hand China and the EU a competitive edge in the ever increasing clean energy economy and lead to fewer opportunities for US businesses.  

Rather than relying on protectionist measures, a government approach to promoting low-carbon manufacturing with subsidies on R&D would seem more beneficial course.

Source: CentrePiece – How China’s rise has shaped innovation and exit among European solar firms. Spring 2025

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