House Looking to Throw More (Bio)Fuel on the Green Trade Fire

Last week, I discussed how the rampant subsidization of "green industries" like US biofuels manufacturers, combined with increased US government efforts to increase exports, could lead to an onslaught of new trade cases in foreign markets or the WTO, as subsidized American "green" exports began to penetrate foreign markets and injure (or threaten) their competition.  Noting a new Australian anti-subsidy case against US biofuels, I said at the time:

Leaving aside the absurdity of a flat-broke nation subsidizing sketchy firms with borrowed money, stories like this have "future trade problem" written all over them. You see, cheap government loans to struggling domestic companies are a common example of an illegal (or "countervailable") subsidy under global trade rules. And, if Solyndra and Tesla survive (a big "if" from the looks of it), their exports to other nations that produce similar solar panels/electric cars would be very vulnerable to national trade remedies cases, just like those EU and Aussie cases against US biofuels. And if those cases result in new tariffs and copycat cases in other markets (a very common occurrence), these companies will lose precious foreign market share and, in some cases, could even go bankrupt entirely unless alternative markets quickly materialize. Big problem.

The US is simultaneously (i) throwing billions of tax dollars at companies like ADM, Cargill, Solyndra and Tesla through various agriculture and energy programs and (ii) pushing these companies' exports through the NEI. As I mentioned months ago, such a combination is a recipe for trade frictions and maybe even a bunch of new investigations of - and eventual tariffs on - US agricultural and "green energy" exports. So is the Australian biofuels case, and the EU one before it, a harbinger of bad things to come or just isolated instances caused by unique market conditions?

Well, according to The Hill, it appears that congressional Democrats are trying their darnedest to get us an answer to that question, but probably not in the way that most of us would have hoped:

House Ways and Means Chairman Sandy Levin (D-Mich.) hopes to put forward a bill next month that would provide tax incentives for creating green-energy jobs.

Details on the proposal have not been released, but extending the Section 48C program that provides a 30 percent tax credit for investments in manufacturing clean energy products could be included in the package.

For those of you who don't obsess over this stuff like, the "Section 48C" program was part of the Stimulus* bill and doled out about $2.3 billion in federal subsidies (through tax credits) to favored green energy manufacturers.  As the Energy Department explains, "[t]he Advanced Energy Manufacturing Tax Credit (MTC) was authorized in Section 1302 of ARRA....  The goal of the MTC is to grow the domestic manufacturing industry for clean energy, thereby supporting the larger goals of ARRA to stimulate economic growth, create jobs, and reduce greenhouse gas emissions.  In short, the MTC will help secure American leadership in the clean energy sector."  DOE's website also has a handy list of eligible industries, which, coupled with statements like the one above, would make any foreign or WTO case against US exports subsidized by this program pretty easy.  (For a primer on the elements of an illegal - or "countervailable" subsidy - go here.)

So to recap: many US "green" exports are already vulnerable to foreign and WTO anti-subsidy cases; two such cases already exist against US biofuels; and yet House Dems want to double-down on this recipe for trade trouble.

I guess they don't call this the "silly season" for nuthin'.

Fortunately, aforementioned article in The Hill also notes that the House measure will face a steep hurdle in the Senate, so maybe we're safe for now from another round of illegal, counterproductive and debt-financed subsidies to the administration's chosen "green" manufacturers.  But if the economy stays in the toilet through the end of the year, you can bet the house that more of this nonsense will re-emerge in 2011.