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HKS757
Case number 1992.0

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Shaping the Future of Solar Power: Climate Change, Industrial Policy
and Free Trade
Introduction
During the summer of 2012, climate experts observed the largest melting of Arctic ice since satellites began
recording the phenomenon in the 1970s. The melt was unprecedented in size and greater than the previous record
low of 2007.
1
Most climate scientists agreed that rising greenhouse gases were primarily responsible for fast disap-
pearing Arctic ice and cause for alarm.
In the twentieth century, concentration of carbon dioxide in the Earths atmosphere grew by nearly 40 per-
cent, greatly intensifying the greenhouse effect.
2
At normal levels, greenhouse gases like carbon dioxide, methane
and nitrous oxide, warmed the world, and helped support life. But by the 1990s, consensus opinion among climate
experts held that, at elevated levels, the same warming effect of greenhouse gases turned dangerous. Higher tem-
peratures caused widespread melting of ice and snow, rise in sea levels, and extreme weather-related events in
the latter part of the twentieth century. By 2007, average global temperatures were nearly 1 degree centigrade
above pre-industrial levels, and droughts, floods, heat waves, storms and tropical cyclones were all more frequent
and severe than previously observed.
3

The dramatic increase in global carbon dioxide emissions was primarily related to combustion of fossil fuels
like coal, oil and natural gas. Left unchecked, fossil fuel-led carbon dioxide emissions, experts warned, were likely
to unleash devastating consequences on entire ecosystems, jeopardizing human lives, and plant and animal spe-
cies alike.
Many believed the solution to preventing irrevocable climate change could be found in renewable energy. So-
lar, wind, geothermal and hydro power seemed to offer the best of both worlds. They could harness widely availa-
ble and often inexhaustible natural resources without the accompanying carbon costs. Solar power, the most

1
Quirin Scheirmeir, Ice Loss Shifts Arctic Cycles, September 12, 2012, Nature, Vol. 489, Issue 7415, News in Focus.
2
World Bank, Development and Climate Change, World Development Report 2010, p. 71.
3
Ibid.
This document is authorized for use only in PGDMII by Dr. Kasturi Das from October 2013 to April 2014.
HKS Case Program 2 of 15 Case Number 1992.0
abundant energy in the world, was also the fastest growing renewable energy industry in 2010.
4
Even though by
2010, less than one percent of total electricity in United States was generated by solar power,
5
proponents be-
lieved its potential to be near limitless. According to solar energy experts, 10,000 square miles, or an area approx-
imately the size of Massachusetts, filled with modern day solar panels, would be enough to power the entire U.S.
6

Globally, investments in solar energy outstripped that of other renewable energies. In 2011, 147 billion dollars was
pumped into the industrymore than a 50 percent increase from 2010 alone.
7
Countries like Germany and Japan
had embraced the solar revolution in the 1990s, but by the 2000s, it was developing countries like China leading
the way.
Complex and often competing agendas on climate change, industrial policy and free trade, however, had
placed solar energy at the center of a high stakes battle between two economic superpowers, the United States
and China. With the rewards of dominating the global solar market potentially vast, Washington and Beijing were
engaged in an increasingly politically charged race that could have far-reaching consequences, not only for the two
countries, but also for the future of the fledgling solar industry as a whole.
Blueprint for a Secure Energy Future
Unlike his predecessors, U.S. President Barack Obama displayed a deliberate focus on renewable energies.
We will harness the sun and the winds and the soil to fuel our cars and run our factories, he declared during his
inaugural address.
8
The Obama administration believed that supporting home-grown, clean energy ventures was
an elegant solution to a host of challenges plaguing the U.S economy, including heavy dependence on foreign oil,
high unemployment, and rising greenhouse gas emissions. In 2009, soon after assuming office, the Obama admin-
istration unveiled an all-of-the-above energy policy that would not only make efforts to use cleaner fossil fuels,
but would also usher in a new era by focusing on the energies of the future. The White Houses Blueprint for a
Secure Energy Future laid out the administrations ambitious goals for fostering renewable energy.
A global race is underway to develop and manufacture clean energy technologies, and
China and other countries are playing to win. To rise to this challenge, we need to tap
into the greatest resource we have: American ingenuity. But clean energy innovation,
and the jobs that come with it, dont just happen.
9

The Obama administration was looking to make critical investments in a wide range of renewable energy in-
dustries like solar and wind, and estimated that its policies and programs would help create more than 800,000

4
U.S. Department of Energy, 2010 Renewable Energy Data Book, p. 17.
5
Ibid.
6
Solar energy like other renewable energy does have the challenge of being intermittent. The technology to store solar energy
so it can be used when the sun is not shining, for instance at night or on cloudy days, is still being developed.
7
United Nations Energy Programme Collaborating Center for Climate and Sustainable Energy Finance and Bloomberg New En-
ergy Finance, Global Trends in Renewable Energy Investment 2011, 2012, p. 11.
8
President Barack Obamas inaugural address, transcript, http://www.whitehouse.gov/blog/inaugural-address, accessed Octo-
ber 2, 2012. Found under whitehouse.gov, Blog, Inaugural Address.
9
The White House, Blueprint for a Secure Energy Future, March 30, 2011.
clean energy job years by 2012.
10
Furthermore, the administrations focus on research and development was
expected to ensure that the United States would become a global leader in the area and that the renewable ener-
gy jobs of the future would remain in the U.S.
As part of the 2009 American Reinvestment and Recovery Act (known commonly as the stimulus bill), the
Obama administration appropriated 90 billion dollars for clean energy.
11
One of the first companies to receive gov-
ernment support under the stimulus bill was the California-based solar panel manufacturer, Solyndra. On a well-
publicized visit to the Solyndra factory in May 2010, President Obama announced its here that companies like
Solyndra are leading the way toward a brighter more prosperous future.
12

Global Environmental Challenge
Fear of irreversible damage to the worlds climate precipitated international action in the early 1990s. Most
countries agreed, in principle, on the need to prevent further increases in global temperatures. In 1997, the Kyoto
Protocol bound developed countries to a carbon emissions reduction program starting in 2005, and urged develop-
ing countries to adopt comprehensive low-carbon energy strategies. The protocol, however, was never fully im-
plemented.
13
The worlds biggest polluter in 2000, the United States, did not ratify the treaty. And populous devel-
oping countries like China and Indiawith the potential to grow from large to mega-polluterswere not required
to alter their energy consumption patterns until after 2012, when the agreement was up for renewal. The Kyoto
Protocol ultimately failed to make a dent in global greenhouse gas emissions, which not only rose by 25 percent in
the following decade, but also reached an all time high in 2010.
14

While some countries did attempt to find sustainable solutions to climate change, most of the world contin-
ued to rely heavily on coal, oil and to a lesser degree, on natural gas for its energy supply. Fossil fuels provided
more than 80 percent of the global energy mix in 2010.
15
It appeared that neither the Kyoto Protocol nor economic
trends like the global recession could deter the relentless consumption of fossil fuels.
The United States was the biggest consumer of fossil energy in the world in 2000, but China was not far be-
hind. With a booming economy and rapid urbanization, it displayed a voracious appetite for energy. Chinawhose
economy was growing at an extraordinary 9 percent annually in the 2000swas on a global hunt for energy.
From oil in the Middle East and Africa, to natural gas in Asia and Latin America, China entered into multi-year, bil-

10
Andy Sullivan, Analysis: Obamas Green Jobs Have Been Slow to Sprout, Reuters, April 13, 2012.
11
Council of Economic Advisors, The Economic Impact of the American Recovery and Reinvestment Act of 2009: Supplement
to the Third Quarterly Report ARRA and the Clean Transformation, April 22, 2010.
12
Eric Lipton and John Broder, In Rush to Assist a Solar Company, U.S. Missed Signs, New York Times, September 22, 2011.
13
The fundamental point of contention between developed and developing countries regarding the Kyoto Protocol was the
difference in emissions requirements. Developed countries pushed for the same standards across the board, while developing
countries wanted the flexibility to emit more as they grew and became more industrialized.
14
International Energy Agency, World Energy Outlook 2011,p. 39.
15
Ibid., p. 40.
lion dollar energy deals with countries near and far.
16
Just a decade later, by 2010, Chinas use of coal and oil and
other fossil fuels had doubled, making it the biggest consumer of energy in the world.
Other emerging economies in Asia, Africa and Latin America were also experiencing economic growth and
were in the process of expanding modern energy to power homes, fuel vehicles and support industrialization. A
2011 International Energy Agency report predicted the coming of a new world order. By the year 2035, developed
countries (historically, the disproportionately largest greenhouse gas emitters) were expected to reach a plateau in
terms of energy consumption, while developing countries would account for 90 percent of the rise in demand for
energy. China would continue to be the worlds the biggest consumer of energy and would burn through an aston-
ishing 70 percent more energy than the U.S in 2035. Even though per capita energy consumption in the U.S. would
exceed that of China, the sheer scale of Chinas growth would place its energy resource needs on a trajectory nev-
er seen before.
17

Oil was the most consumed fossil fuel in 2010. Although petroleum was subject to unexpected price fluctua-
tions, demand was rarely sensitive to price. The Energy Information Administration predicted that demand for pe-
troleum would continue to rise even if a barrel cost $200 (measured in 2009 dollars) by the year 2035, due in large
part to stronger economic growth in developing countries.
18

Gradual shifts in global energy usage, however, hinted at another dramatic change with potentially dire reper-
cussions. Neither oil nor natural gas, with their inherent uncertainties in price and supply, offered the lure of coal.
Dirty coal, the most carbon-intense fossil fuel, began to re-emerge as the fuel of choice at the turn of the twen-
ty-first century. Developing countries were buoyed by the security of coal. It was abundantly available, inexpensive
and easy to transport. As a result, consumption of coal grew faster than that of any other fuel between 2000 and
2010. Chinas share of global coal usage rose from 27 percent in 2000 to 47 percent in 2010twice the volume
consumed in the U.S. By 2035, coal was expected to replace oil as the primary fossil fuel in the world energy mix
and China alone was predicted to consume more than half the global coal output.
The first implementation period under the Kyoto protocol was scheduled to end in 2012 and was to be fol-
lowed by more stringent phases. In the absence of widespread international consensus, however, only weaker
climate accords were reached in Copenhagen (2009) and Cancun (2010). World leaders did formally agree that
average global temperatures could not rise more than 2 degrees centigrade, or 3.6 degrees Fahrenheit, to prevent
any further damages to the planet.
With only the distant promise of a legally binding global greenhouse gas emissions framework, the world, far
from shrinking its carbon footprint, was hurtling toward a future where the impacts of unmitigated climate change
were all too likely.

16
David Zwieg and Bi Jianhi, Chinas Global Hunt for Energy, Foreign Affairs, Vol. 84, No. 5, (Sep Oct 2005), pp. 25-38.
17
All 2010 energy mix statistics and 2035 projections are from World Energy Outlook 2011, International Energy Agency, un-
less stated otherwise.
18
U.S. Energy Information Administration, International Energy Outlook 2011,pp. 27-28.
Solar Energy: The New Frontier
In 1954, Bell Labs had first attempted to turn the suns rays into energy by using silicon cells. In the decades
that followed, the ability to capture direct sunlight continued to evolve and eventually, solar power was used for
heating, electricity and even to produce fuels. But most agreed that, by the 1990s, the solar generation systems
available were cumbersome, costly and inefficient. Two major technologies, photovoltaic and concentrated solar
thermal power, were the most widely used to produce electricity. Solar photovoltaic panelsthin layers of semi-
conducting material molded into cells to convert sunlight into electricitycame in several varieties. The most
popular and most expensive, photovoltaic panels used silicon as the semiconducting material and, in 2008, con-
trolled more than 90 percent of the market.
19
Silicon photovoltaics, were also the most efficient and, on average,
converted approximately 20-30 percent of the sunlight they captured into electricity. Other semiconducting mate-
rials used in photovoltaics included cadmium telluride and copper indium gallium (dis)selenide (CIGS). These pho-
tovoltaic panels were cheaper but also less efficient. While photovoltaics were compact enough to fit on roofs of
buildings, concentrated solar thermal power, the more affordable solar technology, required vast, open spaces
with rows after rows of mirrors to reflect the suns rays and generate electricity which could then be transmitted
to end users via pipes or other distribution systemsmuch like a conventional power plant.
Solar technology began gaining popularity in the early 2000s. Silicon photovoltaic panels were once both ex-
pensive to manufacture (because of the high price of silicon) and costly to install, but two disparate forces con-
verged to dramatically improve their competitiveness. First, financial breakthroughs made solar technology more
affordable for the end user. Commercial and residential buildings in the United States were able to lease solar
panels from host companies rather than pay hefty sums for the systems upfront. These solar power purchase
agreements allowed large companies like Walmart and Whole Foods to substantially reduce energy costs and
later, in the residential market, helped spur demand for solar panels. Second, government subsidies for renewable
energy, in general, and solar energy in particular, played perhaps the most crucial role. In 2012, solar energy was
able to compete on price with grid-based electricity in many parts of the world.
20
Renewable energy experts agreed
that this significant development was in large part due to the billions of dollars offered in government solar incen-
tive programs.
Clean Energy Loan Guarantees
In 2005, the U.S. Congress passed the Clean Energy Policy Act, which was signed into law by President George
W. Bush. Among other provisions, the law created a loan program under the Department of Energy (DOE) to sup-
port innovative clean technologies which would otherwise be unable to obtain conventional private financing
due to high technology risks.
21
In the years that followed, the Bush administration did not authorize any loans, but

19
Lorenz Peter, Dickon Pinner, and Thomas Seitz, The Economics of Solar Power, McKinsey Quarterly, June 2008, p. 5.
20
United Nations Energy Programme Collaborating Center for Climate and Sustainable Energy Finance and Bloomberg New
Energy Finance, Global Trends in Renewable Energy Investment 2012, p. 16.
21
U.S. Department of Energy, Loan Programs Office, https://lpo.energy.gov/?page_id=39, accessed October 1, 2012. Found
under lpo.gov, Programs, 1703.
in 2009, after President Barack Obama assumed office, the DOE loan guarantee program grew into the largest of
its kind in American history.
The Obama administrations stimulus bill amended the Clean Energy Act and temporarily expanded the DOE
loan program to provide loan guarantees for renewable energy systems, electric transmission systems and lead-
ing edge biofuels projects.
22
The 1705 loan program (named after the corresponding section in the Clean Energy
Act) had the authority to guarantee loans for clean energy projects that used new or significantly improved tech-
nologies and had begun operations by September 2011. The DOE began accepting applications in early 2009, and
the loan guarantees were issued by the Treasury Departments Federal Financing Bank.
23
Overall, the 1705 loan
guarantee program handed out more than 16 billion dollars. 82 percent, or 13 billion dollars, of those loans were
given to 16 solar companies, 4 of which were solar panel manufacturers.
24

Solyndra received the first loan commitment under the DOEs 1705 loan program. Created in 2005, Solyndra
produced photovoltaic panels infused with CIGS to generate electricity. The company claimed its unique tube-
shaped product was both cheaper to manufacturebecause it did not use siliconand less expensive to install.
Having already raised 450 million dollars from private investors, Solyndra received two federal loan guarantees
amounting to 535 million dollars between September 2009 and April 2010.
25
The DOE would go on to authorize
billions more in renewable energy loan guarantees, but Solyndra was pegged, from the beginning, as the admin-
istrations energy policy showhorse.
The Obama White House had orchestrated the announcement of Solyndras first provisional loan commitment
with appearances by Energy Secretary Steven Chu and Vice President Joe Biden, via satellite, in March 2009. As a
result, the loan commitment was approved in just nine days rather than the typical 28 days required by the Office
of Management and Budget (OMB). In the enthusiasm to announce the loan, important concerns about the com-
panys business model went apparently unnoticed. Doubts about Solyndras viability, in fact, had emerged even
before the company was granted its DOE loans. Solyndra had applied for a federal loan guarantee in 2008, under
the Bush administration, but had been denied on grounds of lack of competitiveness.
Picking Winners and Losers
By 2000, decades of increasing energy consumption had made the U.S. the largest importer of oil and the big-
gest emitter of greenhouse gasesresponsible for 20 percent of global emissions. Successive administrations had
made ad-hoc efforts to reduce dependence on fossil fuels and to lower emissions by employing environmental
legislations or industrial policies.

22
U.S. Department of Energy, Loan Programs Office, https://lpo.energy.gov/?page_id=41, accessed October 1, 2012. Found
under lpo.gov, Programs, 1705.
23
Diana Furchtgott-Roth, Solyndra and the Perils of Green Industrial Policy, Issues 2012, No. 19, June 2012, Manhattan Insti-
tute for Policy Research.
24
Phillip Brown, Solar Projects: 1705 DOE Section 1705 Loan Guarantees, Congressional Research Report, October 25, 2011
pp. 1-2.
25
Full timeline can be found in The Solyndra Failure, Majority Staff Report, Prepared for the Use of the Committee on Energy
and Commerce, U.S. House of Representatives, August 2, 2012, pp. 3-5.
President Bush had famously rejected the Kyoto Protocol during his tenure, but President Obama, in 2009,
pushed for a cap and trade system, already adopted in Europe, to control greenhouse gas emissions. The cap and
trade bill was passed by the House of Representatives but blocked by the Senate in 2010. Had it been approved,
the legislation would have created an overall ceiling (cap) on greenhouse gas emissions but would have allowed
emitters the freedom to choose how they complied (by trading carbon emissions permits). Internationally, the U.S.
was once again criticized for not making a concerted effort to address the issue of higher greenhouse gases, while
many U.S. economists argued that a price on carbon emissions through a cap and trade system would have effi-
ciently tackled the challenge of further damages to global climate.
In the absence of adequate environmental regulations, government support for the clean energy sector would
need to take the form of industrial policy. Proponents of renewable energy opined that the financial risks involved
in developing and promoting the nascent industries were too big for businesses to undertake alone. But in the
U.S., the notion that government could accurately determine which industries, firms or projects deserved assis-
tance and how much, triggered intense debates between Republicans and Democrats. Republicans with a strong
pro-business stance landed firmly on the side of keeping government from meddling in the economyof letting
market forces and not governments pick winners and losers. Many Democrats, on the other hand, contested that
government policies such as those on taxation and deregulation directly and indirectly affected industries and that
government could play an important role in supporting the private sector.
The debate on the appropriate role of government in nurturing industry, in fact, was as old as the republic it-
self. In 1791, for example, Alexander Hamilton, the first U.S. Treasury Secretary, called for the government to ac-
tively invest in U.S. manufacturing. More recent supporters of industrial policy made several arguments in its favor
and pointed to the critical role the U.S. government played in the growth of key sectors such as agriculture, air-
crafts, semi-conductors and information technology. Supporters of industrial policy also suggested that firms act-
ing alone could not reap the economies of scale required for an industry to be competitive. And, just like Hamilton
did, they acknowledged that because of active government involvement in other countries, the U.S. had no choice
but to respond with its own government policies. Skeptics, however, argued that the government possessed nei-
ther the knowledge nor the skills to be a venture capitalist and that government intervention was inevitably dis-
torted by political considerations.
Supporters and skeptics of industrial policy did not always abide strictly by party lines. Despite opposing rheto-
ric, at different times, both Democrat and Republican-led administrations had leveraged the American govern-
ments considerable machinery to back struggling industries deemed strategically important. For example, the Re-
publican Reagan administration had protected the American automobile and steel industries from Japanese com-
petitors in the 1980s.
Subsidy Gold Rush
Due to the funds appropriated by the Obama administration under the 2009 stimulus bill, American solar
makers had at their disposal an array of federal incentives amounting to a veritable gold rush in subsidies, tax
breaks and research and development assistance.
26
Some incentive schemes predated the stimulus bill, and in ad-
dition to the 1705 loan guarantee program, included:
The advanced energy manufacturing tax credit, created under the stimulus bill, which provided a 30 per-
cent tax break to renewable energy manufacturers that invested in new or expanded operations in the
U.S by September 2011.
The investment tax credit, created in 1978 and modified under the stimulus bill, which provided home-
owners and businesses that owned solar projects a 30 percent tax break on the cost and a cash grant until
December 2016, after which the tax break would drop to 10 percent.
The 1603 grant program also created under the stimulus bill and operated by the Treasury Department,
which gave solar system owners cash grants to cover 30 percent of their costs, regardless of tax liability
until December 2011.
The SunShot Initiative, operated by the DOE, which gave ongoing technical and financial assistance to
photovoltaic manufacturers through schemes like the incubator program and the advanced manufactur-
ing initiative.
27

While renewable energy loan guarantees continued to be disbursed, a broader debate in the White House on
the effectiveness of the 1705 program began to surface. An October 2010 internal memo co-written by Lawrence
Summers, then the chief economic advisor to President Obama, and Charles W. Elliott Professor at Harvard Univer-
sity, and other high ranking officials, was leaked to the press.
28
The memo candidly stated that the Treasury De-
partment and Office of Management and Budget needed clear policy principles and associated metrics of eval-
uation for guaranteeing loans under the 1705 program. As it stood, solar and wind companies could engage in
double dipping between the 1603 and 1705 programs; not provide enough skin in the game, because the gov-
ernment could end up bearing the majority burden of investment while few funds were put up by private inves-
tors; and due to non incremental investment, some companies were likely to survive even without government
support. The memo recommended making changes before the 1705 grant program was to end in September 2011
but no modifications were made.
Solyndras Collapse
Evidence of Solyndras financial challenges had been mounting even before the DOEs second loan guarantee
in April 2010. Solyndras auditor, Pricewaterhouse Coopers, in a March 2010 report, stated that the [company]

26
Eric Lipton and Clifford Krauss, A Gold Rush of Subsidies in Clean Energy Search, New York Times, November 11, 2011.
27
Michaela Pltazer, U.S. Solar Photovoltaic Manufacturing: Industry Trends, Global Competition, Federal Support, Congres-
sional Research Report for Congress, June 2012, pp. 23-27.
28
Co-authors of the memo included Carol Browner, chief advisor on the environment, and Ron Klain, Chief of Staff to Vice Pres-
ident Joe Biden. Matthew Mosk and Tim Fleming, Obama Talks Big About Clean Energy While Cash Stripped from Key Pro-
gram, ABC News, November 3, 2010.
has suffered recurring losses from operations, negative cash flows since inception and has a net stockholders defi-
cit that, among other factors, raise substantial doubt about its ability to continue as a going concern.
29

Although Solyndra executives presented a positive picture, it was crumbling behind the scenes. In October
2010, after months of selling its product below cost, Solyndras executives made another effort to shore up reve-
nues by seeking purchase contracts from government agencies like the Department of Defense and the General
Services Administration, but with little success.
30
By early 2011, Solyndras downward spiral continued unabated
and in March of that year, the DOE restructured the companys loan agreements so that private investors could
claim repayment ahead of the government in case of liquidation.
In August 2011, Solyndra filed for bankruptcy, laid off 1,100 employeesleaving U.S. taxpayers with more
than half a billion dollars in unpaid debtand was raided by agents of the Federal Bureau of Investigation search-
ing for evidence of fraud.
After the fact, analysts cited many reasons for Solyndras collapse. Chief among them was the falling price of
silicon. Solar panel makers began demanding more silicon than semiconductor manufacturers in 2005, which led to
shortages in the raw material and a steep rise in price. By 2009, as predicted by many experts, the price of silicon
began to plummet, largely due to big increases in global production capacity. Solyndras silicon-free tubes were
potentially viable in 2005, but by 2009, the company was no longer able to charge the premium needed to turn a
profit. Solyndras executives also made other questionable decisions. Between 2009 and 2011, the company spent
millions in lobbying fees in Washington. D.C. and pushed to build a new production facility when the first was bare-
ly operating at full capacity. Solyndra was never profitable, and it was obviously poorly managed and unviable in
the global market, said Representative Cliff Stearns, Republican, of Florida.
31

Interviews with DOE officials later indicated that there had been pressure from the top echelons of the Obama
administration to process loan guarantees, including the one to Solyndra, in record speed. Conflicting reports also
emerged from the DOE. Damien La Vera, DOEs spokesperson, claimed that all decisions on loan applications were
made on the merits after careful review by career officials and technical experts in the loan program,
32
but Mat-
thew Rogers, the DOE official in charge of the loan guarantee program, conceded, we had to knock down some
barriers standing in the way to get these projects funded.
33

As expected, Solyndras bankruptcy renewed debates about the governments role in picking industrial win-
ners and losers andduring a Presidential election cyclestoked partisan battles. Many Republicans accused the

29
The Solyndra Failure, Majority Staff Report, Prepared for the Use of the Committee on Energy and Commerce, U.S. House
of Representatives, August 2, 2012, p. 48.
30
See ibid. for full Solyndra timeline. Solyndra had previously entered into a contract with Project Amp to supply solar panels in
its first phase. Project Amp, part of Prologis, received a $1.4 billion loan guarantee from the 1705 loan program to supply solar
power generated from commercial rooftops to the grid.
31
32
Carol Leonning and Joe Stephens, Emails About Clean-Energy Loans Provide New Details on White House Involvement,
Washington Post, August 8, 2012.
33
Obama administration of corruption and cronyism and called for an in-depth investigation by the House Commit-
tee on Energy and Commerce. Several Republican lawmakers claimed that Solyndra was given preferential treat-
ment by the White House because the foundation run by George Kaiser, a major fundraiser for Obama, was the
primary investor in the company. Republicans in the House of Representatives even proposed a bill entitled No
More Solyndras, which if passed into law would end the DOE loan program. The House Committee on Energy and
Commerces report on Solyndras bankruptcy brought an embarrassing spotlight on the governments high-profile
bet gone bad, and called into question both the effectiveness of the Obama-led stimulus program and his signa-
ture energy policy.
Amid a volley of criticism, the Obama administration stood by its loan guarantee program. According to the
White House, the government was in a position to make significant returns on the loans because many of the re-
newable energy companies that had received loan guarantees were, in fact, flourishing. The challenge we have is
that what you really want [the loan] program to do is to make bets on high-risk, high-reward technologies, said
Joe Aldy, former Special Assistant to President Obama for Energy and Environment and Associate Professor of Pub-
lic Policy at the John F. Kennedy School of Government at Harvard University. My sense is on the economics of
[Solyndra] the technology risk didnt play out; and because it was the first one highlighted by President Obama, it
makes for very good political fodder.
34

Although Solyndra was the most prominent failure in the 1705 loan program, it was not the only one. Abound
Solar, another solar panel manufacturer, also filed for bankruptcy in 2012. Of the $16 billion in DOE 1705 loan
guarantees, approximately $1.2 billion had been awarded to four solar panel manufacturers (of which Solyndra
was the biggest recipient).
35
By 2012, two of them were out of business.
Why had the U.S. government, already burdened with a crushing budget deficit, used taxpayer funds to make
risky investments? In October 2011, President Obama explained his administrations rationale in a television inter-
view, if you look at the overall portfolio of loan guarantees that have been provided, it's doing well. And what
we always understood was that not every single business is going to succeed in clean energy, but if we want to
compete with China, which is pouring hundreds of billions of dollars into this space, if we want to compete with
other countries that are heavily subsidizing the industries of the future, weve got to make sure that our guys here
in the United States of America at least have a shot.
36

China: World Leader in Renewable Energy Investment
China had indeed been heavily subsidizing its clean energy industry. By 2010, the country had become the
world leader in renewable energy investment. In 2011, China had invested nearly 50 billion dollars which, accord-

34
Amy Harder, Risky Business, National Journal, September 21, 2011.
35
Philip Brown, Solar Projects: 1705 DOE Section 1705 Loan Guarantees, Congressional Research Report, October 25, 2011,
pp. 1-2. Unlike other loan guarantees, the 1705 loan program used $2.4 billion in appropriated funds to cover credit subsidy
costs.
36
Transcript: George Stephanopoulos ABC News / Yahoo! News Exclusive Interview with President Obama, October 3, 2011,
http://abcnews.go.com/Politics/transcript-george-stephanopoulos-abc-news-yahoo-news-
exclusive/story?id=14659193&singlePage=true#.TxByyG-Pn8c, accessed October 13, 2012.
ing to the nations Twelfth Five Year Plan for Economic and Social Development (2011-2015), was only a fraction of
the nearly 475 billion dollar renewable energy investment strategy laid out by the Communist Party.
37
The Chinese
government hoped to power at least 20 percent of the countrys energy from green sources like solar and wind.
38

Solar manufacturers had been beneficiaries of the Chinese governments largesse for years. Chinas govern-
ment had offered large debt financing deals, a $32 billion dollar loan guarantee program, land grants, and millions
from the green stimulus package to solar makers.
39
Companies like Suntech and Yingli Power were enjoying the
twin benefits of cheap labor and generous government subsidies. Soaring demand for solar cells in American and
European markets helped make behemoths of several Chinese solar manufacturers. In 2011, six of the 10 biggest
solar panel makers in the world were based in China (and Taiwan) and only one, First Solar, was based in the U.S.
40

In 2011, China, the largest player in the international solar market, supplied more than half of the worlds
photovoltaics and accounted for 56 percent of the photovoltaics consumed in the U.S.
41

Not Playing by the Rules
According to the rules of the international trade governing body, the World Trade Organization (WTO), any
subsidy that harmed the domestic industry of an importer amounted to unfair trade.
42
The U.S. had been a mem-
ber of the WTO since 1995. But China's fifteen-year effort to join the WTO was famously long and littered with
challenges. To gain admission into the WTO, the country had to undertake the arduous task of unraveling more
than 7,000 trade barriers such as quotas and tariffs. When China officially became a WTO member in 2001, many
observers feared opening up its economy to international competition would have devastating consequences on
Chinese farmers and the many state owned enterprises. Instead, between 2001 and 2011, Chinas meteoric rise
made it the second largest economy in the world and the worlds largest exporter. Soon, fears about China and
foreign competition swung the other way.
Several countries routinely alleged that Chinas trade policies were violating the WTOs guiding principles.
Grievances included how China dumped cheap products in international markets and kept its currency artificially
low. Critics also claimed that China was willfully slow in implementing several WTO rules (for example on intellec-
tual property) to protect its firms against competition. To observers, Chinas policies smacked of protectionism,
designed to strengthen Chinese exports but deter imports.

37
United Nations Energy Programme Collaborating Center for Climate and Sustainable Energy Finance and Bloomberg New
Energy Finance, Global Trends in Renewable Energy Investment 2011, 2012, p. 12.
38
Ibid. p. 28.
39
Ibid. p. 20.
40
sional Research Report for Congress, June 2012, p. 18.
41
Ibid. p. 19.
42
World Trade Organization, Agreements, http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htm#subsidies,
accessed October 20, 2012. Found under wto.org, Understanding the WTO, Agreements, Anti-dumping, subsidies, safeguards,
contingencies.
The WTOs Dispute Settlement Body recorded a total of 29 complaints against China from 2001 to October
2012. The bulk of those complaintsfifteenwere from Chinas biggest trading partner, the United States.
43
His-
torically, the dispute settlement process at the WTO often ended in negotiated settlements. This enabled the WTO
to uphold the principles of free trade and prevent protectionist action by countries. The WTO could not sanction
member countries but nations could be authorized to impose trade barriers against a member country found guilty
of violating trade rules.
The U.S., under President Bill Clintons leadership had supported Chinas entry into the WTO. But as the years
passed, and as Chinas place in the global economy strengthened, trade relations with China became an ever-
present thorn in the economic agendas of both Presidents George W. Bush and Obama.
American public opinion on China was rancorous by 2012. For many in the U.S., China represented the desti-
nation of valuable American manufacturing jobs, and more broadly, a threat to continued American economic
growth. Two interconnected issues, in particular, caused public outrage. China had pegged its currency, the
renminbi, to the American dollar for decades and prevented its appreciation by accumulating more than 2.5 trillion
dollars worth of foreign exchange reserves.
44
This in turn, kept the price of Chinese exports to the U.S. low and
raised the price of American imports to China, adding to an already skewed trade deficit between the two coun-
tries, which had more than tripled between 2000 and 2011, to 282 billion dollars.
45
A 2012 Pew Research poll indi-
cated that the majority of Americans thought the trade deficit with China was a very serious problem, and the
reason for millions of American jobs moving to China.
46

Solar Trade Wars
Between 2008 and 2012, the price of solar panels plunged by 75 percent, making them increasingly affordable
and competitive with retail prices of carbon-based electricity in many countries.
47
This was a welcome develop-
ment for end consumers, but American and European solar manufacturers were convinced of foul play by the Chi-
nese government. Chinese manufacturers had burgeoned, from a virtually non-existent production base in 2005,
into manufacturing three-fifths of the worlds solar panels by 2010.
48
And the panels were almost exclusively de-
veloped for the export market.
49
While American photovoltaic makers were struggling to survive, Chinese ones had
grown from strength to strength. Chinese solar panel makers had posted impressive year-on-year increases in prof-
its in 2011 while several American solar makers were either filing for bankruptcy or looking for ways to reduce

43
World Trade Organization, Dispute Settlement,
http://www.wto.org/english/tratop_e/dispu_e/dispu_by_country_e.htm,accessed October 31, 2012. Found under wto.org,
Trade Topics, Dispute Settlement, Disputes by Country/Territory, Table of Disputes by Respondent.
44
China Exchange Reserves Jump to $2.65 Trillion, Bloomberg News, October 13, 2010.
45
Office of the United States Trade Representative: China, http://www.ustr.gov/countries-regions/china, accessed October 20,
2012. Found under ustr.gov, China.
46
U.S. Public, Experts Differ on China Policies, Pew Research Center, September 2012, p. 1.
47
Krister Aanasen, Stefan Heck, Dickon Pinner, Solar Power: Darkest Before Dawn, McKinsey and Company, May 2012, p. 3.
48
Keith Bradsher, China Benefits as U.S. Solar Industry Withers, New York Times, September 1, 2011.
49
sional Research Report for Congress, June 2012, p. 17.
costs by moving operations outside the U.S.
50
There is no question that renewable energy companies in the Unit-
ed States feel pressure from China many of them say it is cheap capital, not cheap labor, that gives Chinese com-
panies the main competitive advantage, claimed David Sandalow, Assistant Secretary for Policy and International
Affairs at the DOE.
51

In September 2010, the United Steelworkers union (a trade union of more than one million members working
in iron ore, cement, glass, metal and clean energy) filed a trade complaint with the Obama administration against
Chinese subsidies in the renewable energy sector. The nearly 6,000-page complaint accused China of illegally
stimulating and protecting its producers of green technology exports, in many areas including solar panels and
wind turbines, and urged the government to file cases against China at the WTO.
52
The Obama administration
deemed the complaint worthy of action and escalated the case to the WTO. Chinas Commerce Department initial-
ly claimed it was following WTO rules, but eventually agreed to cease subsidies for wind turbines in 2010. No such
agreement was arrived at for solar panels.
53

Free Trade or Fair Tariffs
In October 2011, seven beleaguered American solar panel manufacturers adopted a different course of action
and filed a complaint against Chinese solar panel manufacturers with the Department of Commerce (DOC).
54
The
coalition, led by Solar World, a German manufacturer with U.S. operations (along with MX Solar, Helios and four
other solar panel makers that chose to remain anonymous), claimed that Chinese solar manufacturers were guilty
of two provisions under U.S. unfair trade laws.
55
First, the coalition alleged that Chinese solar makers had dumped
panels at prices below the cost of production, and second, that they benefited from government subsidies. The
government conducted two separate investigations to verify the charges. The DOC investigation was to measure
dumping margins and subsidies. The investigation by the U.S. International Trade Commission, a federal trade in-
vestigative agency, would determine if Chinese subsidy practices resulted in material injury to the American solar

50
Ibid. p. 16.
51
Keith Bradsher, China Benefits as U.S. Solar Industry Withers, New York Times, September 1, 2011.
52
USW Files Trade Case to Preserve Clean, Green Manufacturing Jobs in America, Press Release, September 9, 2010, United
Steelworkers, http://www.usw.org/media_center/releases_advisories?id=0327, accessed October 3, 2012. Found under
usw.org, Media Center, Releases Advisories.
53
The Chinese wind turbine industry was already well-established and a major international player by the time the subsidies
ended. China Ends Wind Power Equipment Subsidies Challenged by the United States in WTO Dispute, Office of the United
States Trade Representative Press Release, June 2011, http://www.ustr.gov/about-us/press-office/press-
releases/2011/june/china-ends-wind-power-equipment-subsidies-challenged, accessed October 1, 2012. Found under ustr.gov,
Press Releases.
54
U.S. Manufacturers of Solar Cells File Dumping and Subsidy Petitions against China, News Release, October 19, 2011, Coali-
tion for American Solar Manufacturing, http://www.americansolarmanufacturing.org/news-releases/10-19-11-casm-files-
illegal-dumping-subsidy-petition.htm, accessed October 1, 2012. Found under americansolarmaufacturing.org, News Releases.
55
A similar complaint against China was made by more than 20 European solar manufacturers (including Solar World) with the
European Commission in July 2012. E.U. initiates Anti Dumping Investigation on Solar Panel Imports from China, European
Commission Trade Defence Memorandum, September 6, 2012, http://trade.ec.europa.eu/doclib/press/index.cfm?id=829, ac-
cessed October 28, 2012. Found Under, European Commission, Trade, News Archive.
market.
56
If there was proof of both unfair pricing and injury, duties equal to either or both dumping margins and
subsidies could be imposed.
Although several solar manufacturers bemoaned Chinas combative pricing strategies, leading American solar
firms had refrained from filing similar complaints with the DOC for fear that China, as it had done in the past,
would block access to its markets in retaliation. In effect, the anti-dumping case sharply divided the U.S. solar in-
dustry. Some groups like the United Steelworkers backed Solar Worlds effort, while others deeply criticized it.
Solar installation and service firms claimed that lower import costs helped drive demand for more solar panels on
the roofs of American buildings, and that trade barriers would only raise solar prices, cost jobs, and do little to pro-
tect American manufacturers.
57
Given that several U.S. solar panel makers, including Solyndra, had filed for bank-
ruptcy between 2011 and 2012, many observers thought the general malaise in the American solar panel industry
had less to do with Chinese competition and more to do with the nature of the firms themselves.
58
Opponents also
expected tariffs to set off a chain reaction negatively affecting other industries such as solar manufacturing equip-
ment firms, companies supplying raw materials like silicon (both of which China routinely imported from the U.S.
to produce solar panels), and service industries involved in installing and maintaining solar panels.
59

In October 2012, a year after receiving the Solar World complaint, the DOC announced its final decision, pend-
ing final judgment from the International Trade Commission, to impose tariffs in the range of 24 to 36 percent on
the majority of imported Chinese solar panels. The Commerce Department had found that Chinese exporters had
dumped solar cells in the United States at prices between 18.32 to 249.96 percent lower than their fair value,
and that they had received unfair subsidies of 14.78 to 15.97 percent.
60
The tariff rates were a reduction from a
preliminary announcement made by the DOC earlier in 2012, but the countervailing duties were starkly higher,
underscoring the important role of Chinese subsidies.
Industry analysts reactions to the ruling reflected two very different viewpoints on trade and competition. On
one hand, Jigar Shah, the head of the U.S. Coalition for Affordable Solar Energy, and a fierce critic of trade barriers
in the solar industry said because the costs of solar energy have been falling, communities around the country are
selecting solar power. With punitive tariffs, these customers will think twice about paying a premium for solar en-
ergy. On the other hand, the Solar World coalition was delighted with the decision and welcomed a return to fair
competition.
61

56
For more on the U.S. International Trade Commissions definition of material injury see:
http://www.usitc.gov/faqs/import_injury_faqs.htm, accessed October 22, 2012. Found Under, USITC.gov, About USITC, FAQs,
Import Injury FAQs.
57
The biggest cost of solar panels is installation. Most of the employment in the U.S. solar industry is also in the installation
sector.
58
Diane Cardwell, A Tug of War Over Solar Tariffs, New York Times, Green Blog, October 3, 2012, 7.59 PM,
http://green.blogs.nytimes.com/2012/10/03/a-tug-of-war-over-solar-tariffs/, accessed October 10, 2012.
59
Keith Bradsher and Diane Cardwell, U.S. Slaps High Tariffs on Chinese Solar Panels, New York Times, May 17, 2012.
60
U.S. Commerce Department Announces Final Duties on Imports of Chinese Solar Cells, Bridges Weekly, Vol. 16, No. 34, Oc-
tober 10, 2012, International Trade Law Programme at the International Center for Trade and Sustainable Development.
61
Ibid.
The Chinese governments response to the DOC decision was swift. "The United States is inciting trade friction
in new energy and sending a negative signal to the whole world about protectionism and obstructing the devel-
opment of new energy development," said Shen Dayang, spokesman for the Chinese Ministry of Commerce.
62
Yet,
earlier in 2012, as a retaliatory measure against the DOCs preliminary solar panel tariff announcement, the Minis-
try of Commerce had begun investigating charges that the U.S. was dumping silicon in China.
63
China had also
found that the U.S. was violating WTO trade rules by providing government subsidies to its renewable energy in-
dustries but had not filed a complaint with the WTO dispute settlement body.
64

Chinese Solyndras
Beginning in late 2011, the general slump affecting western solar panel makers began dogging Chinese ones
too. Having generated formidable production capacity in record speed, Chinese companies found themselves sad-
dled with an oversupply of solar panels. The global recession and austerity measures had significantly affected de-
mand for solar panels from big importers like Germany, Spain and other EU countries. Caught in a vicious cycle of
being forced to sell their products well below production cost and operating under big losses, many Chinese solar
panel makers soon started going the way of Solyndra. Not only were billions of dollars in loan guarantees handed
out by the Chinese government under risk of default, but it was also likely that additional government support
would be needed to bailout the solar industry from imminent disaster.
65
Chinese solar panel makers blamed tariffs
imposed by the U.S. and the E.U. as the root of its industrys financial troubles. But observers agreed that excessive
production50 percent more than global demand in 2012fueled by government subsidies was more likely the
real reason.
66

Shyam Mehta, Senior Analyst at GTM Research, a renewable energy market analysis firm, predicted that the
solar panel industrys shakeout would last well into 2014. With many of the solar energy subsidies reaching sun-
set in the U.S., and E.U. feed-in-tariff subsidies heavily cut back, Mehta anticipated that the massive supply-
demand imbalance would adversely affect solar businesses around the world.
67
As many as 180 of the 300 panel
makers that Mehta studied were expected to file for bankruptcy, or to be consolidated with larger firms by 2015.
68

How the thorny interplay between subsidies and demand for solar panels would eventually alter the solar indus-
trys future was still to be seen.

62
Joe McDonald, China Rejects U.S. Solar Tariffs as Protectionism, Bloomberg Business Week, October 11, 2012.
63
China Speeding U.S. Solar Dumping Case as Election Nears: Energy, Bloomberg News, September 5, 2012.
64
China-US Sparring Over Renewable Energy Intensifies, Bridges Weekly, Vol. 16, No. 21, May 30, 2012, International Trade
Law Programme at the International Center for Trade and Sustainable Development.
65
Keith Bradsher, Glut of Solar Panels Poses a New Threat to China, New York Times, October 4, 2012.
66
Bloomberg New Energy Finance, Week in Review, Vol. 6, Issue 131, April 16-23, 2012.
67
Shyam Mehta, Global PV Module Manufacturers 2013: Competitive Positioning, Consolidation and the China Factor, Octo-
ber 15, 2012, http://www.greentechmedia.com/research/report/global-pv-module-manufacturers-2013, accessed October 15,
2012. Found under GTM Research Home, Research, Solar.
68
Overcapacity to Edge Out 180 Solar Panel Makers By 2015: Report, Reuters, October 16, 2012.

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