Volts podcast: Abigail Hopper on the trade case that is crushing the US solar industry

In this episode, Abigail Hopper of the Solar Energy Industries Association discusses the trade complaint that has cast a pall over the US solar industry, why she believes it should be dismissed, and the complexities of tariff policy.

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Text transcript:

David Roberts

Back in 2012, the Obama administration levied tariffs on solar panels from China, to punish the country for unfairly subsidizing its panels in an attempt to corner the market. In the ensuing years, US imports from China fell off sharply and imports from Cambodia, Malaysia, Thailand, and Vietnam rose just as quickly.

Early this year, a tiny California-based solar manufacturer, Auxin, filed a trade complaint with the US Department of Commerce, alleging that China is effectively laundering its solar supply chain through third-party countries, thereby illegally circumventing tariffs. It asked Commerce to apply commensurate tariffs on imports from those countries. (Canary Media has extremely thorough coverage of the case, if you want to catch up.)

Commerce is investigating. Meanwhile, the industry has been thrown for a loop — imports have fallen off, projects are being cancelled, and projections of growth are being revised radically downward. The tariffs could be anywhere from 30 to 250 percent, which would radically change the economics of big solar projects, and if applied, will be retrospective over the past two years, which means even existing contracts are in jeopardy. The uncertainty has cast a pall over the entire sector.

The Solar Energy Industries Association (SEIA) has been advocating against tariffs from the beginning and is calling on Commerce to dismiss the complaint. I contacted Abigail Hopper, the head of SEIA, to talk about the merits of the case, whether building a domestic solar supply chain is a good goal, whether tariffs work, and what other policies might be preferable.

With no further ado, Abigail Hopper of SEIA. I'm not going to say the whole thing. Welcome to Volts. Thanks for coming.

Abigail Hopper

Thanks for having me. I'm glad to be here.

David Roberts

So this is a knotty and complicated issue we're going to get in here.

Abigail Hopper

Is that the K-N-O-T-T-Y naughty?

David Roberts

Yes, exactly.

Abigail Hopper

Okay, just checking.

David Roberts

Also, perhaps naughty, we'll see at the end. So I want to kind of go through it piece by piece, before we get to the tariff dispute, the tariff case that's at issue here, let's go back a little bit and just talk about the tariffs. These date back to Obama, the Obama era. So why don't maybe you just tell us sort of what tariffs are in place, and what is the rationale for tariffs, like when Obama put these in place in 2012? What is the sort of stated rationale? What are they meant to accomplish?

Abigail Hopper

Sure. And you already have displayed more knowledge than the average person around the multiple layers of tariffs that the solar industry is dealing with. So, yes, these go back to 2012. And at that time, there was an allegation and then a finding, that China was dumping its product into United States. That meant that the Chinese government was unfairly subsidizing production of solar cells and solar modules and then selling them into the United States below cost. So if it cost $10 to make it, they would sell it in for $5, and the Chinese government would suck up the other $5.

David Roberts

And presumably this is not just, like, unfair or unsporting. This violates some law or treaty.

Abigail Hopper

Yes, it violates the trade laws, and therefore the tariffs were put in place to address that unfair practice.

David Roberts

And then there were more under Trump. What did he add?

Abigail Hopper

So the ones we just talked about, people refer to usually as the ADCBD, Anti-Dumping Countervailing Duties cases, and those are from 2012, and those apply to products coming out of China. In 2017, a case was initiated, and then in 2018, President Trump imposed tariffs. And those are the Section 201. That's the section of the statute it applies to. And those were placed on cells and modules coming from any country in the world. There were a couple of specific exceptions, but generally, any country in the world, these tariffs applied and they started at 30% and stepped down.

There's a whole drama around the bifacial modules and that exclusion, I'm happy to talk about. But those were additive to whatever ADCBD tariffs that were already in place.

David Roberts

So specifically, then, imports from China would face both of these tariffs added together.

Abigail Hopper

Correct.

David Roberts

I mean, the rationale for the first set makes sense. If China is doing something illegal under trade law, that makes sense. But what is the rationale for just slapping tariffs on all imports? That can't be that all importers are breaking trade laws. What's the rationale there?

Abigail Hopper

Yeah, it's a totally different theory of the case. It is not a claim based on fault or anyone being nefarious or violating laws. Rather, the finding is, the allegation and the finding is that the US domestic market has been harmed by competition, and they basically need a pause. They need a pause. They need a break. "Give me a second. I got to get it together." And so the best way that one of my trade lawyers explained it to me, as I was not well versed in trade law when I started this gig.

David Roberts

Little did you know you were going to get a PhD.

Abigail Hopper

Little did I know, right. He explained it as basically putting an umbrella over the United States.

David Roberts

Right.

Abigail Hopper

So there's this protection, right. And the goal of those Section 201 tariffs is to provide an opportunity for the US solar domestic manufacturing base to recover and to build back.

David Roberts

Sure. But what I don't get is that seems like the mirror image of Chinese subsidies. In other words, that seems like giving the US domestic market an unfair advantage. It seems like that would also be illegal under trade law for the same reasons.

Abigail Hopper

So it's not illegal under US trade laws, right. It's certainly, I think a lot of people think smacks of protectionism of US industry. There were complaints taken to the World Trade Organization, right, to allege, that the imposition of the Section 201 tariffs violates World Trade Organization rules, or I don't know what they're called there, actually. Whatever, they're not allowed.

David Roberts

It literally is just a subsidy to US manufacturers, just like China is subsidizing its own manufacturers.

Abigail Hopper

I think that's a very fair argument to make. I think what we saw, which I think is important, is it didn't actually have the same impact, though, right? Like, there were definitely a couple of facilities that were built in the United States after the 201 tariffs were announced, but it certainly wasn't enough to supply the US market, right. It did not create a robust domestic manufacturing base. And so round two of the Section 201 tariffs just took place in 2021. And in early 2022, President Biden extended the Section 201 tariffs.

David Roberts

Yeah. And I don't think I'm alone here, don't get that. It seems like I mean, you know, we can talk later about the question of a domestic supply chain. I want to get into that. But it seems like a crude and not particularly effective tool. And I had thought that sort of the conventional wisdom was that this is a sort of slightly crazy thing Trump did. So what on earth, what reason did the Biden administration give for continuing these tariffs?

Abigail Hopper

So the Biden administration gave a couple of reasons. One was that the US manufacturing industry had not recovered sufficiently, and they said, partly, that was due to COVID, right. That as the entire economy kind of was jolted for a year, year and a half, that they too were. And so they sort of lost out on this time of protection.

David Roberts

Right. So they need a break. They just need a little longer break. They're not quite refreshed and ready yet.

Abigail Hopper

Exactly. I mean, I know that feeling.

David Roberts

Yes, I know. I'm very relatable.

Abigail Hopper

I just don't usually get government assistance with it. They did do two important things, though, in the February 2022 decision. One was to exclude from Section 201 bifacial modules that were being imported. That was a significant development.

David Roberts

Tell us what bifacial panels are and why that's significant.

Abigail Hopper

So bifacial panels are solar panels used primarily, almost exclusively, in the utility scale sector that have the ability to reflect light and create energy from both sides of the panel. So there's material on the back of the panel that allows it to create more energy, and therefore be more efficient and produce more electrons, obviously changing the economics of energy production.

David Roberts

And that's the bulk. I mean, that's utility scale. So that's like the bulk sort of by number, by weight, but that's the bulk of imports. So then what's the rationale there for slapping a tariff on everything except the main import? Like, I'm losing track of what substantive goal is served here.

Abigail Hopper

Well, so the bifacial exclusion was originally requested shortly after the imposition of the 2018 201 tariffs. And at that time, bifacial modules did not represent a large portion of the US market, the import markets. It really was a newer technology that was more in the R&D phase. And so if you think about kind of the theory of the case, the theory of the case is to allow the domestic market the opportunity to really recover and continue to develop. No one in the US was producing bifacial modules. And so allowing bifacial exclusion made sense because it wasn't competing with the US marketplace.

And that's still primarily the case. There really aren't manufacturers of bifacial modules, certainly not at scale in the United States.

David Roberts

So the original tariffs, the Obama tariffs, the rationale there is that, "China is breaking trade laws." The rationale for Trump's tariffs is, "we want to make room for the domestic manufacturing, domestic solar manufacturing industry to grow a little and get more robust." So before we get into the rest of it, I guess the question here, I have sort of a twofold question. One is, is it the case that once these tariffs were put in place, domestic solar manufacturing grew and flourished as intended? The larger question there is the reason, I think everybody at this point sort of gets this, the reason there's a huge solar manufacturing sector in China is not just because the government subsidizes it, although it does, but it's got cheap materials, and it's got cheap labor. It just has advantages, all the same advantages that got manufacturing offshore in the first place. Is a tariff, of the size being discussed here, enough to close that gap between the sort of costs of manufacturing abroad and the costs of manufacturing in the US?

Abigail Hopper

No.

David Roberts

It's not big enough to close the gap.

Abigail Hopper

No. The simple answer is that the tariffs alone did not incent the kind of investment that the proponents of those tariffs articulated it would, right. There were certainly a couple of companies that made the decision to invest in the United States, and that's great, but it did not bring the scale of investment that would support our entire marketplace. And so I'm excited about the conversation about what would it take to develop at that scale. But tariffs, I agree with you wholeheartedly that they are a crude and inefficient tool to create domestic manufacturing in the United States.

David Roberts

Alright, well, we're going to return to that later, but sort of sticking with the tariffs. So the Obama tariffs are in place. The Trump tariffs are in place. Biden extends the Trump tariffs, and then we get this case. This US solar manufacturer, Auxin, files a complaint, basically saying, as I understand it, that China is circumventing these tariffs. It's basically just exporting its materials to nearby countries and then manufacturing the stuff there. And we're importing from those countries. But in all but name, we're still importing from China. Basically, China is using Cambodia, Malaysia, Thailand, and Vietnam to launder its solar cells and panels, and thereby dodging the tariffs.

This is the case Auxin is making. I think there's been a lot of focus on Auxin. And this is, if people care, it's a pretty tiny company, as these things go, does not appear to be particularly robust or growing. There's been a lot of focus on Auxin. But I'd rather just skip all that and talk about the case itself. So I guess where I'd like to start is, just on the merits of the case, is this true? Is China guilty of circumventing tariffs by laundering its materials through these other countries?

Abigail Hopper

No, it's not, and I can tell you why. So there is a statute, right? There's a statute on point that they have alleged that China has violated. And I think the evidence will show that they have not. And the key piece of that statute says that in order for it to qualify the actions you're described, you described well, to qualify a circumvention, the manufacturing or the processing in the third party country, the third country. So the Cambodia, Thailand, Malaysia, and Vietnam has to be minor and insignificant. Like, those are terms that are in the statute.

David Roberts

So, in other words, those countries would just be taking the material and cranking it out and not really doing, not really adding value?

Abigail Hopper

Right. Like, in my mind, it's sort of like it all gets there, they slap a sticker on the back, and then it's like, boom, now it's from Vietnam and not from China. But that's not what's happening. I do not claim to be a supply chain expert, but I certainly have a lot of them that are consulting for us, as you could imagine. And certainly cell manufacturing, the manufacturing of solar cells is far from minor and insignificant, right. It is a very complex, very technologically advanced process that adds a ton of value to the product. The United States Department of Commerce has determined in four different cases already that the country of origin is where the cell is manufactured.

But as they have looked at other cases and considered other claims, they have made that determination, because, "where do you apply the tariff? Oh, you apply it where the cell is manufactured, okay." So the cell is manufactured in these four countries. And so, no, I do not think, and our council certainly doesn't think, that the requirements needed to demonstrate Circumvention have been met in this case.

David Roberts

But another way of looking at this, sort of intuitive way of looking at this, is you got these Chinese companies that are receiving all these subsidies from the Chinese government, which is the whole sort of issue here. And then they open subsidiaries in Cambodia, et cetera, and manufacture there. So in a sense, they're not manufacturing in China, but in another sense, they are still subsidized in the way that caused the original tariffs, right? Do you see what I'm saying? Like, the sort of unfair subsidies still seem to apply, even if a Chinese company opens a satellite company in Cambodia, it's still getting the subsidies.

Do you know what I mean?

Abigail Hopper

I understand the point that you are making. I don't agree with it wholeheartedly. I think two points. One is that some of the companies that we're talking about that are impacted by this Circumvention Petition are not Chinese-owned companies. They're other companies, like from different countries. And so that's sort of the reality. And then secondly, the petitioners chose to use a specific statute, and they didn't meet the requirements of the statute. If they want to go back and choose a different statute, then we can have a different conversation about whether there is sort of unfair dumping of some sort.

But that's not the issue before us today. Like, I get your sort of theoretical point, but we're fighting a battle. And as we have heard a quasijudicial proceeding, we've heard that term so often, and so I'm going to stay focused on the proceeding in front of me.

David Roberts

Right. The case itself.

Abigail Hopper

Yeah.

David Roberts

So if there are a bunch of companies involved in these countries that are not Chinese subsidiaries, then the substance of the case is just that they're sort of conduits for Chinese parts and materials?

Abigail Hopper

Yeah. That some of the raw materials are coming from China, even if the ultimate manufacturer of the seller of the module is not Chinese-owned.

David Roberts

Right. So the substance of your side of the case is to say, "it's not true that the manufacturing taking place in these countries is small and trivial. They are adding value, and thus it's not just laundered Chinese stuff." That's the substance here.

Abigail Hopper

Correct.

David Roberts

Given that Commerce, the Commerce Department, which is the one doing these investigations, and I guess you'd call them the quasi-judge and these quasijudicial proceedings, has found this in previous cases, is it your sense that when they get around to ruling on this, they're going to find that again and rule in your favor? Obviously, you probably don't want to handicap this and make guesses and everything, but are you confident enough in the merits of your case that you think you have a pretty good chance of getting a good ruling at the end of all this?

Abigail Hopper

I do. I think that the statute is clear about what the petitioner has to show. The petitioner has actually testified in other proceedings back to those Section 201 cases we talked about. The petitioner has testified under oath that cell manufacturing is a complex and technical and highly value producing process. And so there's not really anyone that's disputing that. So I think we're pretty confident on the merits. Obviously, one of the things we've also been focused is on the timeliness of a decision.

David Roberts

Yeah, we're going to get into that. The situation is that there's this case in front of now, Commerce Department. The schedule is that Commerce is going to issue some sort of preliminary results, or preliminary findings, in August, and then is supposed to issue a decision in January of 2023. Although, as I understand it, they can, if they want to apply for like a 65-day extension, which could push it out into early to mid-2023. So this situation, if they don't accelerate things, like you're asking them to, this situation is going to linger for a while, potentially for a full year.

So let's then talk about what are the effects of this case lingering out there. Because one of the key pieces, and I don't know if this is popularly understood, is that if Commerce finds in Auxin's favor, it's not just that tariffs are going to get slapped on imports from these four countries, but that tariffs are going to be retroactively slapped on imports from those four countries for the past two years. Which seems, honestly, to me, crazy like that seems to violate some very core principles of ...

Abigail Hopper

Ex post facto?

David Roberts

Of actual judicial proceedings as opposed to the quasi kind. Like in an actual court, you sort of legendarily cannot retroactively punish someone for something that was not clearly illegal at the time. So anyway, point being, it's not just that future imports from these countries will be slapped with a tariff if this succeeds, but that there's going to be a big retroactive penalty on imports. So what effect is this having on the industry at the moment? And it's just the uncertainty, right? I mean, it's just the uncertainty that's screwing everything up.

Abigail Hopper

Yeah, there are so many layers of uncertainty.

David Roberts

Truer words.

Abigail Hopper

Well, let me clarify one thing. So that you are 1000% right about the retroactivity of these tariffs. There were new regulations that went into place November 1, I believe, November 1 of 2021. And so that's sort of the outside date by which the retroactivity could apply. My understanding is it could apply from the date of initiation, April 1 of 2022. So you can just — that's one uncertainty, right? We know they will be retroactive. How far back the Department of Commerce chooses to go is one unknown. Obviously, what the tariff will be, will be another unknown.

David Roberts

Oh, so that's not a fixed thing?

Abigail Hopper

No, that's not a fixed thing.

David Roberts

There's not some standard tariff here. It's a case-by-case thing.

Abigail Hopper

It is usually a company-by-company thing. And if a company does not have a tariff rate, then there's a countrywide rate. And that's why you've heard anything from 50% to 250%. That's why when Secretary Raimondo, the Secretary of Commerce, last week testified that if there were tariffs, there might be 10% to 12%. That's why I, in particular, was very outspoken, that that was just wrong. That's not factually accurate. If there are tariffs and a company does not have a countrywide rate, then it will be 250%.

David Roberts

So we don't know how retroactive it will be, and the tariff will be somewhere between 30% and 250%, which also seems extremely large dollop of uncertainty there.

Abigail Hopper

Very large dollop, right. I think those are the two biggest uncertainties, right. Then, once manufacturer — so your question to me was, "How is this impacting the market?", right. And we are in mad consensus that the uncertainty is really what is roiling the market, and how that is playing out is that manufacturers are just telling their customers here in the US, "You know what, we're not going to sell you modules. There is way too much risk, way too much uncertainty. We're going to go sell our modules to Europe, or we're going to sell them to Brazil, or we're going to sell them to another country where there's not this crazy policy uncertainty."

David Roberts

So spell it out for me. What could happen? Like, if they sell to someone in the US for X price, and then the tariff is imposed retroactively, the customer then has to pay more?

Abigail Hopper

Yeah.

David Roberts

I literally don't understand how that works. If you complete a transaction under the current circumstances, and then the tariff is passed, and it's retroactive, do you then have to sort of reopen all those transactions and redo them?

Abigail Hopper

So the way that it works is that the importer of record is liable for the payment of the tariff. So Manufacturer A, they may sell their product to a customer for whatever the cost is, but under the terms of their importation agreements, like with the US government, right, their right to import into the US, they're obviously liable for additional duties. And if there were additional tariffs imposed, then the manufacturer will be liable for that additional money. They are going to contract that risk with their customer, right. They're going to say, "Hey, there's a risk here," right. "And so either you, customer, take the risk. It could be 20%, it could be 200%, could be 250%. We're happily bringing you some modules, if you want to take that risk." Obviously, the customer is going to say, "No way, I'm not going to take that risk."

David Roberts

How do you even price risk when it's, like, as we're saying, the range of possible outcomes, the uncertainties are so broad, like I wouldn't even know how to put a number on that risk.

Abigail Hopper

Well, I think that's what we're seeing, is that you are not alone in being unable to price that risk. And so the alternative is they're just not shipping here. Every conversation I have had with a customer, a developer, a residential installer, a CNI company, their number one challenge is they cannot get modules. They cannot find modules. It's not a question of "the modules are too expensive," right, because that at least you could make a determination of whether the project can bear additional cost.

David Roberts

Right.

Abigail Hopper

It is literally like, "I can't find them."

David Roberts

Yes. Actual prices do help the operation of markets, I've found, like, having a numerical price does ease market transactions.

Abigail Hopper

Right. Did you have to go to special school for that to figure that one out?

David Roberts

So then imports have dried up? Projects aren't being built? We're only sort of a few months into this. What's happened so far?

Abigail Hopper

Honestly, I think the entire solar market is a bit in shock at how quickly this has happened, but yes, the answer is yes. Modules are not being imported into the United States. So even if you had a purchase order, it's not necessarily being honored. Domestic module suppliers, obviously, everyone wants to buy from them.

David Roberts

Right. They must be kind of enjoying this, right? I mean, they must be maxed out.

Abigail Hopper

So I will tell you what I'm hearing, which is that they are definitely maxed out and, perhaps, some are not honoring contracts, are renegotiating contracts because demand has gone up so much.

David Roberts

Yeah, I'm sure they can get a premium.

Abigail Hopper

And a higher price, right?

David Roberts

Actually, I want to take a little factoid timeout.

Abigail Hopper

Sure.

David Roberts

Let's get, just as a marker here, so listeners can get a sense — how robust is the domestic US solar manufacturing industry? In other words, what percentage of the demand for cells and panels and modules in the US could be satisfied by the existing domestic manufacturing sector?

Abigail Hopper

So it's currently about 25%. So if you think about last year, 2021, we had about seven and a half gigawatts of domestic production in the United States. That includes all technologies. So first, solar technology as well as PV technology that's covered by these tariffs. We installed about 23, 24 gigawatts last year, so roughly 25%. The majority of US production serves the residential market, the distributed market, and so it is not 25% of the utility scale market and 25% of the resi market. I don't actually know off the top of my head what percentage is by market class, but it is a much lower percentage for the utility scale because that's not what is here in the US.

David Roberts

Right. So if you're cutting off imports from these four countries in question, you're, even best case scenario, if the US domestic solar manufacturing industry is humming along at peak capacity, you're whacking off 75% of your supply, which can only result, I would imagine, in prices from domestic manufacturers going through the roof. Like they could ask, if this keeps going on, they could basically get whatever price they ask, couldn't they?

Abigail Hopper

I mean, they could until the market can't bear it anymore, right? And then those projects won't get built either. I think at some point there'll be a cap. But you are right, it distorts the laws of supply and demand because it's just such extreme pressure on demand. Obviously, there's lots of companies that are looking at supplier module manufacturers outside of those four countries, right, and trying to track back their supply chain.

David Roberts

How robust is that? How concentrated is manufacturing in those four countries? Is there a robust manufacturing capacity outside those four countries that are not subject to tariffs?

Abigail Hopper

So the majority of US imports come from those four countries. There are other places that have manufacturing. Because the US doesn't have kind of — they've not been the majority of our imports. There's not the same kind of quality assurance or kind of bankability or comfort level with performance. And so there's a lot of that kind of work happening right now.

David Roberts

I bet they're scrambling too. Like solar manufacturers in whatever other country must be excited about this. So projects aren't being built, things are not being imported. Consequently, US coal burning is on the rise for the first time in years. Super exciting. There was an Indiana utility that announced that it's going to keep its coal plants open several years longer than planned because the possible spike in solar prices. It's going to screw up a lot of utility plans, like a lot of utilities are planning big shifts to solar, and this could potentially throw a wrench in all those plans.

But let me ask this. The effects we're seeing now, as you're saying, are largely a result of uncertainty, just because no one knows how this is going to go, and there's such a wide array of possible outcomes. So let me ask this. If the case doesn't go your way, if Commerce finds in favor of Auxin, and these tariffs are slapped on imports from these four countries, presumably that would be damaging to the industry, but probably not as damaging as this current fog of uncertainty. So in other words, I'm asking, is the level of damage that's happening right now, that will diminish somewhat just when there's some certainty, right?

Abigail Hopper

It obviously depends a little bit on what happens. And if Commerce — a 10% tariff versus a 200% tariff, obviously, is a very different outcome.

David Roberts

Right.

Abigail Hopper

The situation in Indiana, though, is really compelling for a number of reasons. Because not only, obviously, is it troubling that a carbon emitting facility is going to continue to emit longer than was anticipated. But as you think about other utilities that we're building, they put out IRPs, and they put out a whole plan, and then they did RFPs to find lease cost resources, and those were solar and storage usually combined. Now we're impacting reliability, right? We're clearly talking about carbon, which is critical, we're also talking about reliability, and we're talking about rates to customers. And so the beauty of the growth of solar is that we can impact the market.

And the challenging part is that we're going to impact the market. If you take this fuel source out, or make it uneconomic, it's going to have an impact on ratepayers and reliability. And that thread, I think, is something that hasn't gotten quite as much attention, right? People think, "Oh well, half-built solar projects in the middle of the desert, well that's not ideal." No, that's not ideal. But so is like new generation not showing up when it's supposed to, right?

Think about what's happening in South Carolina. That nuke is not showing up when it was supposed to. And that's impacting rates, well, that's a whole different reason, and impacting supply. And similarly, if you take solar and storage, if you either take. It off or push it out two, three, four years, what are we going to use? How are we going to keep the lights on? What's the plan? We had the Senior Vice President of SPP at an event two weeks ago, and he and I were having this conversation, right? As they look at their resource planning from the RTO perspective, and they think about their queue, and then they think, "well, 30%, 40%, 70% of what's in the queue might drop out," because it can't show up, because it's not getting built. That's a problem.

David Roberts

Maybe 20% of it, maybe 80% to 90% of it.

Abigail Hopper

Right.

David Roberts

Again, this is not a small uncertainty band that we're dealing with.

Abigail Hopper

It's not.

David Roberts

I think when normal people hear about this, there's a number — I don't know if there are any normal people listening to my podcast. I think when normal people hear about this, they're baffled by a number of things, one of which is Biden's allegedly got this whole of government push for clean energy. It's one of his sort of signature things. There's all these things he's doing to advance clean energy, and then there's this one thing that his administration is doing which could sort of almost single handedly just chop the knees out from under the clean energy push.

And it just seems like that's bizarre. Why do that? But it's worth noting here that there are legal like — well, let me ask this, because I've been wondering about this — Once Auxin filed the case, was Commerce sort of obliged to take it up, or did they have discretion on that front?

Abigail Hopper

Obviously, they felt they didn't have discretion. They felt like once the case was filed, they had to initiate. We have a very different view of that, but it's water under the bridge at this point. We are where we are.

David Roberts

Right, but you think they could have elected just to what, just ignore it?

Abigail Hopper

Not ignore it, but just find that an investigation wasn't necessary. The regs clearly indicate this, they also have the authority and could have exercised it to initiate a case and then issue a preliminary determination at the same time. They could say, "You know what, we will investigate, and we're going to issue a preliminary negative determination." Like, we don't think, based on this petition, there's anything here. We'll continue to take a look, right, through the rest of the investigative process. But they obviously chose not to do that either.

David Roberts

Yeah, they chose not to do that. And it's, like, the effects of this, the effects of them taking it on and leaving this uncertainty open are very predictable. So, again, I return to being baffled. I guess, who has control over this? Could Biden do anything? Is there anyone who can do anything other than the people at the Commerce Department? And who are they, and what would you like them to do?

Abigail Hopper

Yeah, well, first of all, I share the bafflement of the regular people, or normal people, or whatever phrase you used. I don't consider myself either regular or normal, but I certainly am very baffled. In all seriousness, it is without a doubt the most frustrating and maddening thing I've experienced in a long time in my professional career, right. Just this juxtaposition of rhetoric on the one hand and action on the other. And it is enough to sort of put our hands up in agony, but yet we fight on another day. But it is mind-numbing. I can tell you what certainly should happen based on the statute.

If you can't tell, I'm a lawyer, so I'm super focused on sort of what the statute allows. Obviously, this decision process is bounded by statute and being governed by people who are very attuned to what the statute allows and doesn't allow. And what the statute provides is that the Secretary of Commerce, so to answer your question, "Who's in charge," the Secretary of Commerce will make a determination about whether this Circumvention Petition is meritorious. And there's five things for her to consider. I talked about one of them, which was whether the processing was minor and insignificant. Even if you were to determine, "Yes, all of these elements have been met and there is circumvention," there's a fifth factor, which is, "Is the imposition of tariffs appropriate?", right? And appropriate is one of those words that lawyers love.

David Roberts

Yeah, exactly. You can sneak a lot through that door.

Abigail Hopper

Yeah. I think it's — like Congress wrote this statute, right. And they know what the word appropriate means and sort of the discretion it conveys and it gives the Secretary of Commerce. And so I think, as the Secretary of Commerce is thinking about what is appropriate, reflecting on what the President, as you said, what the President's signature policy platforms are, how critical addressing climate is to all of us as humans. Obviously, the economic impact that this has, there's a number of things that we think she should be considering as she determines the appropriate remedy for any finding if she were to make one.

David Roberts

So in theory, she could look at this and say, "Yes, there's some circumvention happening, but slapping a giant tariff on it would screw up this administration's, one of this administration's central goals, so we're just not gonna." She theoretically has the discretion to say that.

Abigail Hopper

Yes, she does. The statute allows her to say that. We don't think she'll get to that point because we don't think the first factors are met, but even if she were to get to that point, she still has the discretion to determine it's not appropriate. Your second question about can Biden kind of, I don't know if you use the word overrule, but ...

David Roberts

Well, can he do anything?

Abigail Hopper

Not really. I mean, I think the President kind of always has ability to overrule his cabinet secretaries, but no one is expecting that he would do that.

David Roberts

Like legally, he's supposed to allow Commerce to be independent on this, right? I mean, that's the sort of idea.

Abigail Hopper

Yeah, that's the idea. That's the idea.

David Roberts

It's moments like this when I think back to the Trump administration, and I think, "I wonder if Trump would be restrained in interfering with such decisions by norms and precedent." So what do — you have asked Commerce to basically accelerate this process and basically issue an early decision saying, "we're tossing this out." Commerce, as far as we can tell thus far, is not taking you up on that. So at this point, are we just sort of locked into a process where we get this preliminary decision in August and then a final decision in January? Is that schedule fixed at this point? Or do you think there is still any open possibility that they might push it up or accelerate it?

Abigail Hopper

Yeah, so I don't characterize it personally as an early determination, right. I think the statute allows them to take up to 150 days.

David Roberts

Right.

Abigail Hopper

But there's nothing that says they can't act sooner. And in fact, as I said, the regulations allow them to issue a preliminary determination on day one. So all we're asking is that they look at the precedent of their own department, right? They look at what they have decided in prior cases and use that information in a timely manner to get to a more rapid decision. So, so far, I'm sure, you know, there's been an opportunity for people to comment on the investigation, there's 30-day period, and now there's been an opportunity for Auxin to respond and rebut those comments.

And we've actually asked the Department of Commerce to take those 60 days, 30 days, 15 days, and another two weeks to review everything and act by the end of May. So what is it? It's May 19 today. I'm looking at my computer. So no, it's certainly not fixed in stone. We do not think that we should all just resign and wait until August. We're going to keep up the pressure because as we talked about, it's having such a huge impact on the market, that a decision earlier, rather than later, would be extremely helpful.

David Roberts

Okay, so let's turn now to the sort of substantive question, or kind of the philosophical question. Does SEIA agree with the basic idea that it would be good for the US to have its own freestanding, more or less, independent domestic supply chain for solar technology?

Abigail Hopper

100%. Yes.

David Roberts

But, I shouldn't get diverted on this, but I wonder about that. Everyone seems to agree on that. And I just wonder why though. I mean, I understand that there's this larger issue of, like, manufacturing got offshored from the US, and our manufacturing sector is hollowed out, and we want to build it back up. But why solar specifically? The world is full of products where the supply chains are concentrated in particular countries, and we just don't worry about it. It's just part of sort of like specialization. It's part of the sort of advantage of capitalism is specialization, and we get the cheaper products out of it.

And we don't worry that, when it comes to toasters or whatever, that we're vulnerable because our supplier of toasters, because toaster manufacturing is concentrated, might cut us off from toasters. They could, but they probably won't because they depend on our toaster money. That's what trade is. We're not vulnerable to suppliers. Suppliers are also vulnerable to customers. It's a two-way relationship. So I guess I just wonder, why do we need a domestic solar manufacturing supply chain?

Abigail Hopper

Yeah, it's a totally fair question. I think I feel strongly that we need a domestic manufacturing supply chain for the following reasons, and I should not have said 100% quite so quickly. I think you characterize it as — I don't think we need exclusively 100% domestic supply chain. I think we're always going to have a global supply chain. But I do think it makes sense to bring back more domestic manufacturing to the United States. And I think that for a couple of reasons. I think one, certainly the last two plus years, the challenges that COVID has brought with supply chain, the increasing price of transportation, sort of the vagrancies of workforce in other countries as things are happening, we all saw, solar included, how depending on supply from a particular part of the world or a particular country, it's a risk.

It is a risk that perhaps we hadn't fully realized or fully experienced before this.

David Roberts

And just tossing this in there too. There's the whole slave labor question.

Abigail Hopper

Yeah, that was going to be number two.

David Roberts

Yeah. Sorry to cut you off, but I was like, "Oh, God, I don't want to forget to, I don't want to forget to mention that." I'm doing devil's advocate a little bit, but obviously this is a counter consideration.

Abigail Hopper

But if you think about it, certainly, obviously slave labor and forced labor has zero place in the solar supply chain. And I think we've done a number of things which I'd be happy to talk about. But if you think even a little bit more generally, the integrity of the supply chain, the carbon intensity of a supply chain, kind of all of these different attributes that customers are caring about more deeply than perhaps they did five years ago or ten years ago, I think that really lends itself to a more transparent and onshored domestic supply chain. So I think there's that.

And then I think third, it does go to customers, right? Customers do want Us manufactured product, and if we can invest at scale, like the at scale part is really important, I think we can continue to get the price down, right, even for those customers. Customers say they want US manufactured products until sometimes they see the price, and then they think, "Oh, maybe I don't need it." But scale, scale, scale, scale.

David Roberts

This gets to, like, I guess the broadest take on this issue, which is just that it seems like there are two kind of incommensurate impulses we have here. On the one hand, we don't want slave labor. We don't want exploited labor. We don't want people cheating in international trade. We want domestic jobs. We want domestic supply chain and all this. But on the other hand, it's just inarguably true that the US's progress, thus far, on clean energy has depended on inexpensive solar from abroad, where it's manufacture cheaper with cheaper labor. And of course, that's great for solar installers in the solar industry and everything, but it's also great for climate.

We want the transition to clean energy. So it just seems like those two are in tension here. And I hear people arguing from both sides, and either side seems to sort of find ways of dismissing or talking around the other side. But it seems like there's just no way around it. Like there's no way to solve that equation. Like, you're either going to have a more robust domestic manufacturing and more US made panels, that are more expensive, or you're going to continue basically taking advantage of cheap manufacturing, and cheap labor abroad, to more rapidly install solar.

It just doesn't seem like there's a neat way of resolving that basic tension. Am I wrong?

Abigail Hopper

I think you might be wrong.

David Roberts

I hope I'm wrong.

Abigail Hopper

I just don't think that, sort of past this prologue, is really applicable here. If you think about how our industry is going, I mean, I really believe it's going to grow exponentially over the next decade and the next two decades. And so things that seemed uneconomic and not scalable in 2015 are going to be very doable in 2022 and 2025, right. So there's just this change in norms. I think one of the things we've really been focused on is trying to figure out what the US does really well in the manufacturing space and harnessing our energy and our time and our resources on those things.

And then there are things that other countries do really well. We don't have to recreate every wheel here, but we should figure out what's the most efficient.

David Roberts

Well, yeah, this is one of the things, even if it turns out US manufacturers are really good at, say, manufacturing panels, the raw materials are almost all coming from China, right? Like, the rare minerals, all the early processing steps.

Abigail Hopper

Currently they are, but we have a lot of capacity to produce polysilicon here in the United States.

David Roberts

But do we want to? Like, a lot of that sort of basic mineral mining and processing business is really gross, and, like, China is doing it for cheap. So even if we develop a robust panel manufacturing industry, which would be great, we'd still, if you choose to look at it this way, would be dependent on China for the raw materials. Unless we also move that over here. But it's just not clear that these sort of low rungs of the manufacturing chain are some great prize. Do we want that in the US?

Abigail Hopper

Well, I think you have either intentionally or unintentionally stumbled upon sort of the bigger question about the clean energy transition, right. And like, yes, we all want solar panels and wind turbines and batteries, but are we ready for the mining and the manufacturing and all the other pieces that go along with it? Same with EVs and all that stuff? I think there's a real question about whether — I am on "camp yes," just for the record. Like, yes, we do want that stuff, and we need to be cognizant of the entire supply chain, but sort of embrace the fact that if we want to have solar panels, we're going to have to use polysilicon, and that means we're going to have to mine for metallurgical grade silicon.

Right. Like, these things don't just happen by Fiat, they are actually manufactured and mined.

David Roberts

Right. Somebody has to do them, and we want them done well, and we want them done equitably, and we don't want them to be done in a way that exploits workers. But it seems like one thing we could do is, since we're a large market, we could just do things like buying standards. Like we'll only buy raw materials from mines and processors that can demonstrate that they pass some basic standards, stuff like that.That would take care of the sort of moral concern, and it still wouldn't require standing up a mining and processing industry in the US.

Abigail Hopper

Right? Yes. We're actually working on a whole standard setting certification at SEIA.

David Roberts

So say you do want to, as you do, and I think most people do want to, enhance the US domestic solar manufacturing industry. Why are tariffs — I mean, that's basically, despite what the sort of technical justifications are generally, politically, that's the motivation for tariffs, I think, the reason they get away with them — why are tariffs the wrong tool to do that?

Abigail Hopper

We have a decade of experience to show that it just doesn't work, right? Like, if it worked, that would be a different conversation. But we have been tariffing product coming into the United States, and it has not resulted in domestic manufacturing. We have not talked, but we certainly could talk about the domestic manufacturing incentives that are in the Reconciliation Bill, right. The pieces that pass out of the House of Representatives.

David Roberts

This is where I want to conclude the conversation, then. So if we agree that we want domestic manufacturing, and tariffs don't work, which I think is ... I had thought that was sort of conventional wisdom, kind of common knowledge, but as I've been reading about this, sort of like, I keep seeing tariff defenders popping up out of the woodwork. But if we think tariffs are not the right instrument to make that happen, what is the right instrument? Because I just want to make a quick point here, which is that when we talk about this, I feel like people are a little glib about this, and I think people underestimate the distance between where we are now and a robust domestic solar manufacturing chain is not a small thing.

The idea that just like boosting the price of imports alone, it's a little bit like the carbon tax discussion, right? Just making fossil fuels a little more expensive on the margins is not going to have the motive effect of building an industry, right? Like, if you want to build an industry, you got to build an industry. It's a very big thing to do and requires big policy to do it. And people who say they want it, I'm not sure everybody's fully reckoned with the size of the task.

Abigail Hopper

Right. Yeah. I agree with what you just said. I think that if we really want to bring domestic manufacturing to the United States, then we do need to embrace those big, bold ideas. And our thinking, and obviously, having spoken to lots of manufacturers, is that they need some certainty, right? It's not rocket science. If you're going to invest hundreds of millions of dollars in a manufacturing facility in the United States, you're going to want some market certainty.

David Roberts

Yeah. That's not a small unit of investment.

Abigail Hopper

No. Sometimes I share your frustration. Most folks doing this work are rational, economic actors, right? And they're making kind of risk-reward calculations. Anyway, they need some certainty. And there's nothing particular about solar that needs certainty, right. If we were talking about pencil manufacturers, right, they need certainty. But looking at what passed out of the House of Representatives and what we worked on really closely with them, it really is a long-term demand driver, right. So long-term extensions of the investment tax credit, so you know the customer base will be there. It is an investment tax credit for the actual investment in the facility and then a production tax credit.

And it's not just modules and cells, but also things like trackers inverters, so covering more of the real high-value pieces of the manufacturing base of production tax credit. It's also woven into the ITC regime requirements for domestic manufacturing to keep your refundability, your direct pay, as the years go on, and then an adder for domestic content. And so that, in my mind, is the whole of government, or at least the whole of the tax code, perhaps, approach.

David Roberts

What's Ossoff's thing that deserves a mention in here? That's law now, right? That passed? Or it's in the BBB?

Abigail Hopper

Yes, it is in the BBB. It is what I just described. The investment tax credit for manufacturing investment and the production tax credit for the production. That's Ossoff's bill. So it's passed out of the House. It's sitting in front of the Senate waiting a vote, as you know. That's not where you wanted to land.

David Roberts

Well, avoid the Senate if at all possible, but apparently it's not very possible.

Abigail Hopper

No, I don't think that's ...

David Roberts

Do you think, or does SEIA think, that what is in the House version of the Build Back Better Act is to scale with the goal of building a domestic manufacturing industry?

Abigail Hopper

I do. I think when you ... yes. And when you then add that to some of the assets of the department of energy, things like the loan guarantee program, things like the R&D spending at Cedo and other offices, and the advanced manufacturing initiatives, that — all of those tools that we have at our disposal, plus the national labs, right, plus universities. As you said, this is an ecosystem that we need to build. This is not just like, "Oh, someone goes stick a factory and fill in the state." It is a thoughtful and strategic ecosystem that needs to become sustainable and self-reliant at some point.

And so, yeah, I think that what is contained in the House provisions of Build Back Better, including Senator Ossoff's SEMA, is going to be significant. We put out a press release a couple of weeks ago about the manufacturers that have articulated ... once that passes, they'll be making announcements and breaking ground on manufacturing facilities. So it's not just kind of theoretical. It's companies that have capital at the ready and are looking to the US government to signal a long-term policy certainty, so they can make those investments.

David Roberts

Do you have any I mean, getting into wild speculation here, but if Commerce finds in Auxin's favor and slaps these tariffs on these four countries, and we get something like the Build Back Better Act, or something like, whatever we get, if those things limp across the finish line, any idea how that would balance out?

Abigail Hopper

Again, it depends on the level of the tariffs, but I think it would be sort of classic, like one step forward, one or two steps backwards, right. It would be just an incredibly lost opportunity if we were able to get provisions passed, and then handicap ourselves with tariffs.

David Roberts

Right. So the most unanswerable question of all: what the hell is going on in the Senate? And are you, I assume, SEIA is up there lobbying or whatever. Do you have any insight into Senate dysfunction that anyone else doesn't have? Do you have any handicapping of the possibilities here? What the hell is going on? No one knows what's going on. Do you know what's going on?

Abigail Hopper

I know that myself and my team are up on the Hill lobbying literally every single day, and having conversations with all of the names that you read in the newspaper on a daily basis around what's happening. After that, I don't have a lot more insight than we're all reading in the news clips. They're keeping this pretty close. The people that are negotiating on what is going to happen, either on the clean energy side, specifically, or generally on a reconciliation package. I think they learned some really painful lessons at the end of last year, that, perhaps, negotiating through the press was not a particularly effective mechanism.

And so things are close, and I choose to take that as a good sign, right. If there's enough at stake that we're not going to talk about it until there's something to announce, I'm going to choose to view that hopefully.

David Roberts

So you're just reading the tea leaves. What color is the smoke coming out of the window?

Abigail Hopper

Exactly.

David Roberts

Well, thank you so much for coming on. This is such ... in an era of screwed up things happening, it's just like, "Do we need this one more screwed up thing happening, really, on top of everything else?" So thanks for coming on and untangling it a little bit for us. And maybe once something happens, who knows what that might be, we can have you on to talk about the aftereffects.

Abigail Hopper

I love that. Thank you for your time.

David Roberts

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