The latest ruling of this forum has put paid to India’s ambitious National Solar Mission as the US flexes its muscles in an attempt to capture growing renewable markets
By Dinesh C Sharma
The ink had hardly dried on the Paris agreement at the UN conference on climate change in December 2015, when a few weeks down the line all efforts seem to have gone down the drain.
The pact had bound all countries to make progress towards low-carbon growth. World leaders, including American President Barack Obama, welcomed the deal as the best chance to save the planet from environmental catastrophe. But now, all these homilies sound hollow. It seems climate mitigation will remain hostage to the business interests of powerful countries and trade regimes will prevent a shift towards low-carbon technologies, as feared for many years by developing countries. The knives are out to capture growing renewable markets as was seen in the latest ruling of the World Trade Organization (WTO) about India’s ambitious National Solar Mission.
The WTO ruling essentially says India must change the terms of its solar mission because it includes a domestic content clause requiring part of the solar equipment to be produced nationally.
The WTO panel, in its report released on February 24, settles a complaint filed by America in 2013, claiming that the clause about domestic content requirements (DCR) under the Jawaharlal Nehru National Solar Mission for solar cells and solar modules was inconsistent with Article III:4 of the GATT 1994, Article 2.1 of the TRIMs Agreement (Trade Related Investment Measures) and Articles 3.1(b), 3.2, 5(c), 6.3(a) and (c), and 25 of the SCM (Subsidies and Countervailing Measures) Agreement. It was claimed that DCR appeared to nullify or impair the benefits accruing to the US directly or indirectly under global trade agreements.
The WTO report said DCR also accords “less favourable treatment” within the meaning of Article III: 4 of the GATT 1994. It noted that electricity purchased by the government is not in a “competitive relationship” with the solar cells and modules subject to discrimination under the DCR measures.
India argued that the DCR clause fell under “general exception” under GATT 1994 because India lacked domestic manufacturing capacity in solar cells and modules, and there was a risk of disruption in imports. It also justified DCR on the grounds that it secures India’s compliance with “laws or regulations” requiring it to take steps to promote sustainable development. India tried to meet the US demand half-way by proposing that DCR would be applicable only for government purchases and not for commercial deals.
The WTO ruling is based on the premise that DCR will give Indian manufacturers an unfair trade advantage. Given the urgent need for the world to shift to renewable sources of energy and the imperatives of energy security, the DCR clause should have been evaluated as a long-term incentive to boost manufacturing of solar panels in India.
What is DCR?
The National Solar Mission, which aims at deploying solar power across the country, seeks to promote development of domestic manufacturing capacity across the value chain. In order to do so, it provides for domestic content requirement (DCR). The provision of DCR for setting up solar power projects was kept in mind while setting up guidelines for Phase-I with a view to develop indigenous capacities and generate employment. It was noted that the production capacities for solar PV cells and modules had expanded in the country.
A domestic solar manufacturing base is an important part of India’s aspirations to become a global player in this field. The mission aims to establish the country as a solar manufacturing hub to feed both a growing domestic industry as well as global markets.
For Phase II of the mission, the following options for DCR have been proposed:
– All PV projects, cells and modules produced in India shall be used
– Price preference for domestic manufactured cells/ modules
– Percentage of domestic content in cost terms (say 50%) for both PV and thermal technologies
– Percentage of cells manufactured in India
– Some batches with 100% domestic content requirement
– For thermal technologies, material equivalent to 50% of supply costs (excluding land, taxes, erection, financing, soft costs, etc) should be manufactured in India during Phase II
In order to operationalize DCR, any of the above conditions or a combination of them could be used. DCR conditions under schemes entailing direct funding support by the government could facilitate development of domestic manufacturing capacity base.
The national solar plan envisages achieving a renewable energy target of 175 GW by 2022 with 100 GW coming from the National Solar Mission. It is also a part of Intended Nationally Determined Contributions (INDCs) submission to the UN by India. India crossed 5GW of installed solar capacity in December 2015. It also launched the International Solar Alliance of solar rich countries at the beginning of the Paris climate talks. The ambitious plan would result in massive business opportunities for global companies engaged in solar business, but India wants to develop a long-term, domestic base in solar manufacturing.
Environmental groups globally have condemned the US for its double-speak on climate change. “The US position is particularly hypocritical as the US implements similar domestic content requirements and subsidies to strengthen the renewable energy sector within its own borders. Most US states have Local Content Requirement (LCR) conditions and subsidies, making India’s DCR very much in keeping with accepted industry practices,” said a statement from Greenpeace USA. Pujarini Sen, campaigner with Greenpeace India, welcomed the reported decision of the Indian government to challenge the ruling, saying it would help the fledgling solar manufacturing sector compete with the price of imported products.
Sam Cossar, program coordinator at Friends of the Earth International (a network of environment organizations), said the WTO ruling amounted to misuse of trade rules to undermine governments that support clean energy and local jobs. “Trade agreements are often stumbling blocks for action on climate change. Current trade rules limit governments’ capacity to support local renewable energy, undermine clean technology transfer and empower fossil fuel companies to attack climate protection in secret courts. Trade policies are preventing a sustainable future,” Cossar noted in a statement.
Recently, Ecuador was ordered by a World Bank arbitration panel to pay $1 billion for cancelling a petrol contract under a bilateral investment treaty. Several trade pacts—the Trans Pacific Partnership (TPP), Trade in Services Agreement (TiSA) and Transatlantic Trade, Investment Partnership (TTIP)—that seek to liberalize trade are actually promoting fossil fuels and restricting options for governments which are party to such deals.
It really isn’t a fair world, is it?