By Lucia Green-Weiskel

In the first week of September, the Steelworkers Union filed a complaint to the US Trade Representative against China for subsidizing its renewable energy industry in a way that is illegal according to the World Trade Organization. The complaint is 5,800 pages long (or 80 moving boxes in printed form) and includes Chinese violations such as using illegal land grants and low-interest loans and other measures to produce the technology needed to generate renewable energy at artificially low prices.

But those who criticize China’s subsidies are taking a dangerously short-sighted perspective and failing to realize that while individual countries may balk at subsidies, the world as a whole desperately needs them.

Take for example, the opinion of New York Times Columnist Paul Krugman as it is expressed in his September 20th op-ed. He notes that the subsidies are part of China’s broader effort to create artificial values, in order to favor China’s domestic industries over their foreign counterparts and boost exports. Krugman says that China’s artificial values may be good for certain firms in China and the US  in the short term, but in the long term it is bad for the US economy as a whole because it results in a huge trade surplus and a loss of jobs to China.

Moreover, he adds, US officials are spineless about the issue (leaving it to the slightly less submissive Steelworkers Union to file the complaint) because they fear the Chinese will stop buying bonds, unload US debt and cause the value of the dollar to fall, or, worse, they fear retaliation from Chinese businesses.

But as an economist, Krugman is not allowing himself to see the non-economic side of the picture. The full impact of the cost-benefit analysis of China’s subsidies can’t be understood by simply plugging a variable into an equation. China’s renewable energy subsidies have created the only existing solution we have to reducing greenhouse gas emissions and combating climate change in developing and developed countries alike: namely, cheap and plentiful green technology that is widely available.  And there is no reason why both countries can’t benefit from these developments.

Here is some context. Ten years ago, many officials in China thought that climate change was a hoax – an invented concept designed by Western countries to undermine the rapid growth of the Chinese economy. Today, China‘s leaders have committed that country to some of the most ambitious carbon-reducing policies in the world. To meet those targets, China has become a leader in wind and solar energy, biofuels and public transportation and is the only country in the world that is building an industry of green technology at a scale that could bring down the price of goods like electric vehicles, solar panels, and wind turbines, making them affordable in the developing world. None of these advances would have been made without subsidies and other help from the government.

From another perspective, by subsidizing green technology, China is doing America and the world a huge favor. In a world where carbon footprinting, energy auditing and GHG inventories are becoming increasingly popular (and in this country, mandated by the EPA), companies need to buy competitively priced green technology in order to comply with regulations. In our globalized world, many of the companies that are reporting and reducing their GHG emissions are huge US-based multinationals – like Wal-mart –  with operations and sales all over the world. These are the companies who are being nudged by either voluntary or mandatory regulations to take the first shaky step into greenhouse gas regulation and will be the first companies to be required to simultaneously reduce their energy use and increase their level of production. Access to cheap, plentiful green technology will be crucial in this transition. And China is the most competitive seller.

For China this service is a thankless endeavor. China is now the largest emitter of greenhouse gases in the world (although it still ranks far below the US on a per capita and historic basis). But, almost one-quarter of China’s emissions come from products that are made for export. And that number will grow if China takes on the role of the world’s factory for green technology. The manufacturing of wind turbines, solar panels, fuel cells, biofuels and electric vehicles, is in and of itself, a carbon-intensive undertaking. So, as China contributes to the world’s ability to have access to renewable and “green” sources of energy, its own local pollution problems grow. The US, by relying on China to produce this and other carbon-intensive goods, can keep its air and waterways relatively clean.

My solution to the SWU/China clash is to subsidize development of renewable energy and its associated technologies in both countries. Then we can keep both American and Chinese workers in their jobs and ensure we have the technological capacity we need to transition to a green economy. It is important to remember, all energy industries have depended on subsidies to survive. Just look at the nuclear and fossil fuel industry in the US and Europe. If we want to take renewable sources of energy seriously, it must be subsidized, too.

Perhaps it is the WTO rule in this case that is off base. The WTO regulation at issue here states that countries can subsidize renewable energy that is sold domestically (both the US and China do this) but it cannot subsidize the production of those same technologies if they are made for export. Perhaps there can be some category of trade that rises above the tit-for-tat trade policies of the WTO and takes into consideration the global perspective. Let’s have both countries invest in the new green economy with no handicaps – competition between China and the US will only ensure better quality and faster production of green technology — and that is the real goal here. After all, if we are all underwater in 50 years,  who will be left to pore over 5,800 page documents to calculate China’s trade violations?