Examining the inputs in China's soaring solar industry.
So what makes China’s solar panels so cheap?
Of course, currency manipulation plays an important role, but it goes deeper than that. We tend to think of solar power generation as pollution-free, but that's only true if their manufacturing process abides by the environmental regulations put in place to safeguard communities. And as I mentioned in a previous post, the Chinese government’s enforcement of its environmental protections is weak at best.
First, consider that there are more than 20,000 factories in just the Shanghai region to be inspected, while China's Environmental Monitoring/Inspection Bureau has 45 officials and a budget of $600,000. In comparison, the U.S. Environmental Protection Agency's (EPA) enforcement bureau has a budget of $700 million and 3,000 employees. Due to lax enforcement, Chinese solar companies save 'millions of dollars by not installing pollution (controls)."
Next, consider that the two critical raw materials for key renewable energy technologies -- like solar -- are rare earths and polycrystalline silicon (commonly referred to as polysilicon). China is practically the world’s sole supplier of rare earths, and has dominated their production by producing them at a remarkably low price -- about one quarter of that which had previously prevailed in the rare earths market. How it achieves this low price, however, is rather ruthless.
Chinese producers make only minimal efforts to deal with the environmental impacts of the mining process. The rare earths mining regions in Inner Mongolia are amongst the most polluted areas in the world. Rare earth mines also pay low wages and provide little or no health or safety protection to miners, which results in poverty conditions and health problems for the workers. Essentially, the Chinese price for rare earths is about one-quarter of the price that would result from an environmentally sound, worker friendly operation. The “real" price of rare earths, therefore, is about four times higher than the current China price.
In addition to the issues around the mining of rare earths, less than one-third of Chinese polysilicon producers meet China’s own environmental and energy standards. Environmental violations occur frequently in the solar photovoltaic manufacturing process, wherein many entities take advantage of various loopholes in the pollution control system. It should surprise no one that the production of polysilicon used in solar panels has caused toxic chemical pollution on China’s mainland.
Out of Sight, Out of Mind
There has been much rhetoric from the China’s central government regarding clean energy, including frequent pledges to reduce pollution. But many local officials in China often put economic growth, revenue and job creation ahead of environmental concerns.
These local officials’ initiative plays well here. Artificially cheap Chinese solar panels are seized upon in the American market as an opportunity to widely deploy and install solar across the U.S. in a push for renewable energy. But these solar panels are clearly produced at the expense of workers, communities, and the environment. The result? In an attempt to decrease our dependency on carbon intensive energy, the U.S. has offshored pollution and the burdens that come with it to communities in China, who do not have the same liberties as U.S. citizens do to organize and demand enforcement, let alone creation, of public environmental protections.
Is this the path to a less carbon-intensive future that America should endorse and build upon?