Leibowitz on Trade: Can Consensus on Renewables Break Policy Gridlock?

A weekly commentary cannot do such a broad topic justice. But here are some developments that highlight the dilemma we face and that warrant discussion.

Renewables Drowned Out in Fight Over Transmission Lines in New England

Litigation in Maine illustrates the complexity of reducing reliance on fossil fuels in favor of renewable energy. It can be hard to tell who the progressives are and who the conservatives are in this one. Hydro Quebec in Canada is one of the world’s leading producers of hydroelectric power. That’s natural: there’s lots of water in Quebec, and relatively few people – so energy can be produced cheaply and exported to the US, where there is less water and more people. It’s simple economics and, in trade terms, comparative advantage.

In 2014, Hydro Quebec began a large power project. The state of Massachusetts wanted to buy power from it, which would reduce the state’s reliance on fossil fuels. The power lines from Quebec to Massachusetts must run through either New Hampshire or Maine. New Hampshire rejected the idea of power lines. But Maine accepted the idea, approving rights of way for high-voltage electric transmission lines, which would provide clean and renewable energy to Maine as well as Massachusetts.

Opponents of the project claimed that the power lines would harm the environment in the Kennebec River Valley. They succeeded in putting the issue to a popular referendum in November 2021. The opponents won 59% of the vote—although, like most odd-year elections, the turnout was low. (Fewer than 40% of eligible voters turned out.)

The referendum enacted a new law that prohibited the state from approving any new high-voltage power lines in Maine without a two-thirds vote of the state legislature, retroactive to 2014. The Supreme Court of Main will hear two lawsuits targeting the project (one challenging the legality of the law approved in the referendum) this week. Two strongly held beliefs need to be balanced, both pro-environment: reduction in fossil fuel use and preservation of Maine’s wilderness.

That’s hardly the only complex issue of international economics and geopolitics this week.

California Goes Nuclear Over Solar Panel Trade Policy

Consider another situation involving trade remedy cases—antidumping and countervailing duties.

Case in point: products imported from a country not covered by an existing trade remedy order. Domestic producers can request a “circumvention” proceeding aimed at covering those new countries as if the covered country was the source. In March, petitioners in the solar panels and cells trade remedy proceedings filed just such a request. In April, Commerce initiated a circumvention investigation, covering imports from four new countries: Vietnam, Cambodia, Thailand and Malaysia. The investigation is likely to take a year. If an affirmative determination is made, it would probably cover all imports retroactive to April 1, 2022.

In reaction, last week an Indiana electric utility, NIPSCO, announced that it was postponing closure of the last two coal-fired power plants in the state until at least 2025. Why? Because of uncertainty regarding the future of solar energy.

California Gov. Gavin Newsom wrote to Commerce Secretary Gina Raimondo arguing that the investigation, announced in April, threatened to derail major solar projects in that state. The result? California is reconsidering plans to shutter the last nuclear plant in the state. The Solar Energy Industries Association (SEIA) estimates that imposing antidumping and countervailing duties on imports of solar modules from Vietnam, Malaysia, Thailand and Cambodia could leave the US 75 gigawatts short of solar capacity goals for 2025 set by the Biden administration.

So, who is right? As usual, both sides have a point—but is reducing pollution or increasing domestic solar production more important? The domestic solar industry wants to force US consumers to buy domestically produced solar panels, raising their profits (or reducing their losses). But that will sacrifice the rapid achievement of climate goals. The solar industry, which for now relies considerably on foreign sources to ramp up solar capacity, says that the lost time cannot be made up. Clearly there is room for compromise—but US law, which forces the Commerce Secretary’s hand, does not provide any flexibility. The investigation, and the attendant uncertainty and delay, must go on, and cannot be rushed.

Section 232, Section 301 and a Busy Summer for Trade Lawyers

Next, consider the current tariffs on steel and aluminum imports, imposed under Section 232 of the Trade Expansion Act of 1962, and the China tariffs under Section 301 of the Trade Act of 1974.

In a recent budget act, Congress required the US International Trade Commission (ITC) to conduct a study, with public comments and a hearing, on the impact of the Section 232 and 301 tariffs on the American economy. The ITC hearing is scheduled for July 21, 2022. Requests to appear at the hearing must be submitted to the ITC by July 6. The ITC will issue its final report by March 15, 2023.

Second, the US Trade Representative (USTR) announced a proceeding beginning in July to evaluate whether to change or terminate the China Section 301 tariffs. The Section 301 law requires such evaluation after four years, and that anniversary is coming up on July 6. Hearings and briefings will take up much of the summer. The first step is to solicit requests to continue the “List 1” tariffs before July 6, followed by requests to continue the “List 2” tariffs on or before August 22. The levies will be terminated if no requests to continue are received. If (as expected) requests to continue are received, there will be further public proceedings. The “List 3” and “List 4A” tariffs may also be involved because those have four-year anniversaries shortly after the List 1 and List 2 deadlines. A busy summer for advocates looms.

These tariffs have plainly impacted the American economy. Some domestic sectors have benefited, but others have been harmed because American companies and consumers end up paying them. Yet again, the usual suspects will make the usual arguments. Whatever the ITC decides, its report will not have the force of law and will not affect the authority of the executive branch to impose or remove the tariffs. Armed with the ITC report, Congress could have hearings and consider legislation regarding the sweeping executive branch power to levy huge tariffs. But there are no guarantees that anything will pass.

Party affiliation aside, the “conservatives” in these cases want to preserve wilderness and to maintain protective tariffs that benefit private interests much more than national security. The “progressives” are those who want change: in this case, new sources of renewable energy to replace fossil fuels.

The only way to resolve these disputes for the benefit of the country is to debate them, and for each side to really listen to the other. That will require a changed mindset because interest groups raise money by stoking fear. How do we encourage people used to reaching for a megaphone to hear out the other side? It’s going to take a while to get there—but to benefit our future and our children’s futures, we should try.

Lewis Leibowitz

The Law Office of Lewis E. Leibowitz

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