The People's Republic of China threatened this week to take legal action against the U.S. under World Trade Organization (WTO) rules on the grounds that several renewable energy programs in six states constitute prohibited subsidies. Though yesterday's announcement by the Chinese Ministry of Commerce does not specify which California program is raising China's ire, it's most likely California's Self-Generation Incentive Program (SGIP) the Ministry has in mind.
Administered by the California Public Utilities' Commission (CPUC), the Self-Generation Incentive Program (SGIP) is intended to encourage buildout of non-solar distributed generation capacity in the state. The CPUC says the decade-old program is responsible for the creation of 412 megawatts of generating capacity in more than 1,500 separate installations.
China's Ministry of Commerce labeled the SGIP as an illegal subsidy in a statement in a policy release in May. Among the SGIP's provisions is a 20% incentive bonus for projects that use materials made in California.
If China does bring the dispute to the World Trade Organization, the WTO could force a repeal of the SGIP's local buying preference.
The charge by China's Commerce Ministry is being made in the context of an escalating war of words between the U.S. and European Union on one hand, and China on the other, in the renewable energy trade sector. Each side has accused the other of illegally subsidizing its own domestic renewable energy industry, dumping products on the global market, and penalizing foreign companies contrary to the WTO agreement. The U.S. imposed a 31% tariff on Chinese solar panels, and bumped up import duties on the country's wind turbines last month.
May's policy statement by the Ministry of Commerce listed the other U.S. programs it viewed as improper subsidies as the Washington Funds Project to Encourage Renewable Fuel Production, the Wind Generation and Manufacturing Projects of Ohio, the State Energy Program of New Jersey, and the State Rebate Program of Massachusetts. The Ministry accused the programs of:
constituting prohibited subsidies as stated in Article 3 of the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement), violate provisions of Article 3 of SCM Agreement and Article 3 of the GATT 1994, distort normal international trade, and constitute trade barriers by "violating or failing to fulfill the obligations stated in the trade treaty or agreement signed or jointed agreed by the country (region) and China" as stated in Article 3 of the Rule of Investigation.