Bloomberg. 23 June 2021

Below is an article published by Bloomberg. Photo:AFP.

The U.S. is poised to bar some solar products made in China’s Xinjiang region, according to several people familiar with the matter, marking one of the Biden administration’s biggest steps yet to counter alleged human rights abuses against the country’s ethnic Uyghur Muslim minority.

Xinjiang — where advocacy groups and a panel of United Nations experts say Uyghurs and other minorities have been subjected to mass arbitrary detention and forced to work against their will — produces roughly half of global supply of polysilicon, a material critical for solar panels and semiconductors. China has denied the allegations, saying they’re an attempt to undermine successful businesses.

The move targeting Chinese manufacturer Hoshine Silicon Industry (Shanshan) Co., Ltd., which is expected to be announced Thursday, has implications for solar’s supply chain and could force U.S. companies to find material elsewhere. It comes after both the Trump and Biden administrations accused China of “genocide” in a campaign to erase the culture of the predominantly Muslim Uyghurs.

A White House spokeswoman had no immediate comment. Details of the plans were described by people who asked not to be identified prior to the announcement.

The U.S. is trying to cripple the industrial development of Xinjiang, and seeks to force poverty and unemployment on the region, Chinese Foreign Ministry Spokesman Zhao Lijian said Thursday at a regular press briefing in Beijing. “China strongly condemns the sanctions that the U.S. imposes on Chinese companies based on lies and disinformation,” he said. “China will take all necessary measures to resolutely safeguard the legitimate rights and interests of Chinese companies.”

Under the “withhold and release order” the Customs and Border Protection is expected to announce Thursday, imports from Hoshine would be blocked from entry at U.S. ports and only released if they can prove the goods are not made with forced labor.

Hoshine’s shares fell 7.2% in Shanghai trading Thursday.

Separately, the Commerce Department will add five Chinese entities to its export blacklist. According to a notice set to be published in the government’s Federal Register on Thursday, they are Hoshine; Xinjiang Daqo New Energy Co. Ltd; Xinjiang East Hope Nonferrous Metals Co. Ltd.; Xinjiang GCL New Energy Material Technology, Co. Ltd; and Xinjiang Production and Construction Corps., which has previously been sanctioned. American companies that sell to those entities will then require approval from the U.S. government.

Hoshine, East Hope and GCL-Poly didn’t immediately reply to emailed requests for comment. Daqo could not comment on the issue, head of investor relations Kevin He said in a text message.

One of the people familiar with the planned move said the administration is responding to what it sees as forced labor practices that run counter to U.S. values and force American companies to compete on an uneven playing field by allowing Chinese firms to artificially suppress wages.

While the narrow reach of the administration’s steps falls short of a broader ban that had been sought by some activists, organized labor and lawmakers, the person said that further actions may follow and investigations are ongoing.

In May, U.S. climate envoy John Kerry said officials “believe in some cases” that Chinese solar products are being produced by forced labor and confirmed the administration was mulling restrictions.

But Group of Seven leaders clashed earlier this month over how strongly to rebuke China over alleged forced labor practices. In the final communique, the G-7 called “on China to respect human rights and fundamental freedoms, especially in relation to Xinjiang.”

U.S. solar companies, which rely heavily on imported photovoltaic panels, had already begun shuffling supply chains in anticipation of the action. And at least one polysilicon producer in Xinjiang — Daqo New Energy Corp. — had opened itself to the possibility of audits and outside scrutiny in a bid to shield itself from U.S. sanctions.

The Solar Energy Industries Association, a Washington-based trade group, which recently unveiled a traceability tool aimed at helping solar importers and manufacturers track the supply of materials, said it supported the planned action. “The fact is we do not have transparency into supply chains in the Xinjiang region, and there is too much risk in operating there,” the association’s general counsel, John Smirnow, said in an emailed statement.

Still, the Biden administration’s move “could have a significant negative impact on the whole U.S. solar industry,” Roth Capital Partners LLC said in a research note for clients. “If implemented, module imports would need to prove that there is no content from Hoshine in order to enter the U.S.”

Hoshine is a major supplier of metallurgical silicon, the raw material used to create solar-grade polysilicon, producing about 800,000 metric tons annually, according to Roth. “Access to solar modules in the U.S., in our view, could be severely limited by this order as we believe isolating and tracing MG-Si through the supply chain could present a significant challenge,” Roth said.

While Xinjiang is a major polysilicon hub, the material is sent for further processing in factories in other parts of China and other countries before it’s ultimately assembled into the solar panels that are shipped to the U.S. That creates additional challenges and would mean supply chain verification efforts would almost certainly require the cooperation of Chinese manufacturers.

A 1930 trade law bars the importation of goods that are mined, produced or manufactured by forced labor — and empowers the federal government to seize the products or block their entry into the U.S. Under former President Donald Trump, the U.S. Customs and Border Protection in January issued a withhold release order targeting cotton and tomato products produced in Xinjiang.

Senator Jon Ossoff is poised to introduce legislation establishing a tax credit for domestic solar manufacturers that he hopes will pass as part of a larger infrastructure package later this year.

The tax credit, which would work in concert with existing incentives for consumers, would be fully refundable and aims to rapidly accelerate the production of solar energy in the United States. The Georgia Democrat said his bill is intended to close the gap between U.S. manufacturers and global competitors, paving the way for U.S. leadership on clean energy.

“We should not be satisfied that China has a stranglehold on the solar supply chain and they have been heavily subsidizing domestic production for about a decade and a half without any substantial response from the United States,” Ossoff said in an interview Monday with Bloomberg News.

President Joe Biden is aiming to fully decarbonize the country’s power grids by 2035 — a lofty goal that will require a lot of solar power. But the country has mostly been reliant on imports, including from Chinese companies, for its mounting solar capacity.

Ossoff’s Solar Energy Manufacturing for America Act aims to spur domestic manufacturing by offering tax credits for multiple stages of the solar supply chain, including modules, photovoltaic cells and solar-grade polysilicon. The incentive would be available through 2028 with a phasedown over the next two years.

The Georgia Democrat said he worked with the U.S. Energy Department and companies on the proposed incentive, which he described as important to boost energy independence. The credit, he added, would make price per unit production in the U.S. competitive with foreign manufacturers.

The tax break would be a boon to solar manufacturing in his state, which is a budding hub for clean-energy production. Georgia is home to Hanwha Q Cells’ solar-manufacturing plant that opened during Donald Trump’s presidency. It’s also expected to house an SK Innovation Co. battery plant.

“After a decade of witnessing the systematic erosion of America’s leadership in solar innovation and manufacturing, and the corresponding over-reliance on imports from China, the Solar Energy Manufacturing for America Act represents a new hope for American solar,” Samantha Sloan, vice president of global policy at U.S. manufacturer First Solar Inc., said in an emailed statement.

Ossoff said he’s working with Senate Finance Committee Chairman Ron Wyden to wrap his proposal into a broader clean energy plan that the Oregon Democrat hopes to attach to an infrastructure bill this year. Ossoff said he has also consulted with the White House and Energy Department.

Biden has made renewable energy a focal point of his $2.25 trillion American Jobs Plan, which includes a 10-year extension of tax credits for solar, wind and other clean energy projects and makes some of those credits refundable. The White House proposal would provide more certainty to wind and solar companies, which rely on federal subsidies.

The Biden infrastructure plan, unveiled earlier this spring, disappointed some environmentalists and progressives who contended much more was needed to reach the scale needed to combat the climate crisis. The White House has also tried to reconcile efforts to address the climate emergency with outrage over alleged human-rights abuses in China’s Xinjiang region, which makes about half of global supply of polysilicon, a material critical for solar panels.

An alternative plan from Wyden consolidates the existing menu of tax breaks, which includes more than 40 separate provisions, into three technology-neutral credits targeting electricity, transportation and energy conservation. All energy sources qualify, so long as they have zero or net negative carbon emissions. The plan also includes manufacturing tax credits for a range of technologies and eliminates breaks for oil, gas and coal.

The Finance Committee advanced Wyden’s $259.5 billion package on May 26, making it a candidate for a broader infrastructure deal later this year. Ossoff is hoping to convince Wyden and his other fellow Democrats to prioritize solar energy while they have majorities in both chambers of Congress.

“There is a clear path forward under current Senate rules for the kind of generational investment in infrastructure and clean energy that we need. It will require a combination of bipartisan legislation and the use of the budget reconciliation legislation,” Ossoff said, referring to a fast-track procedure to move legislation through the Senate without Republican support.

On other matters, Ossoff said he was still studying the bipartisan infrastructure plan being worked on by 11 Republicans and 10 Democratic senators, saying he was focusing on how it would be paid for.

He broadly called the effort at bipartisanship “encouraging,” but was not ready to endorse the plan. That proposal would cost about $1.2 trillion over eight years. Senator Bernie Sanders of Vermont and House Speaker Nancy Pelosi are among those who’ve said they wouldn’t support the framework if it included measures such as raising the gas tax or a fee on electric vehicles.

Ossoff said he reserves the right to support or oppose the legislation in whatever form might actually reach the floor.