The End of China's Wind Subsidy Program and the Future of Global Clean Technology Markets

06/09/2011 03:59 pm ET Updated Aug 08, 2011

The announcement earlier this week that China would end its controversial wind subsidy program is welcome, but is only the tip of the iceberg when it comes to ensuring open, contestable global markets for environmental technologies.

Under pressure from the United States, which filed a formal complaint challenging the compatibility of China's Special Fund for Wind Power Manufacturing with global trade rules, Beijing this week agreed to terminate the program. The fund had required manufacturers to use domestically-made parts rather than imports as a condition for receiving government grants.

The end of the subsidy program is good news, and demonstrates the value of strong U.S. economic diplomacy as well as the importance of the World Trade Organization (WTO) as a forum to resolve disputes.

But China's wind subsidy program is symptomatic of a larger issue. Accessing international clean technology markets can be difficult for American exporters, thanks to subsidies and other factors such as tariffs, regulations that favor domestic companies over foreign providers and a lack of transparency in rule-making. Green trade barriers are particularly challenging for small businesses, which have fewer resources to monitor and address changes in overseas markets.

China alone has a "fabric of laws, regulations and directives which provide for preferential incentives, procurement preferences, local content preferences, and R&D subsidies for their renewable energy equipment producers," according to a study commissioned by the National Foreign Trade Council last year.

Around the world, high tariffs can impair competition on everything from renewable energy products to smart grid to natural gas. Brazil maintains a 14 percent tariff on certain wind turbines. Russia, which is seeking membership in the WTO, applies a 20 percent tax on foreign solar panels. South Korea places a 6.3 percent duty on large gas turbines. Tariffs raise the cost of adopting environmental technologies and can lock out American exporters.

Other standards and regulations can also affect the ability of exports to compete in local markets. Any lack of transparency in a country's rule-making and notification procedures can cause problems for companies operating in the energy space, as the standards and rules governing emerging technologies and efficiency standards are still under development and can act as barriers to entry.

One example is in Mexico, where the government will require the measurement and labeling of energy consumption for a range of electronics from servers to multi-function printers by September. These requirements are challenging for companies, which will have to alter their global production processes to comply. They are also potentially confusing, and would benefit from further clarification of how the information must be displayed (on the product? on the company's website?) and which products are subject to the requirement.

Advance input from businesses that have to comply with these laws can be valuable to the government, yet in this case Mexico failed to provide proper notifications to other countries about the new rules. Governments as well as companies benefit from transparent processes that encourage and respond to public comments on new regulations, as feedback can improve compliance and highlight potential unforeseen consequences.

Fair rules and green trade aren't just in the interest of American exporters. Creating a level playing global field for clean technologies will help countries around the world develop lower-carbon economies and adopt environmental technologies at a reduced cost. Eliminating tariffs and red tape are good for green and sustainable development as well as for business.