Solar Panels Made in the USA Need the Right Government Tax Incentives

In an Op-Ed column in today's NY Times, Thomas Friedman describes the problem of a major maker of machines that make solar panels not having a single customer plant in the United States. While there are solar panel factories in the United States, he is right on the mark in pointing out the threat to the U.S. economy, jobs, and global competitiveness in not having more domestic manufacturing capabilities. His proposed solution is to have the United States adopt the kind of customer incentives for deploying solar that is present in other countries to drive greater purchasing of solar panels in the United States.

Where the analysis and proposal in his column fall a bit short is in not acknowledging the wage/cost factor. The top reason why companies choose to locate manufacturing plants outside of the United States is because of the desire to take advantage of lower manufacturing costs based on lower wages, worker benefits, safety and environmental regulatory compliance. To be competitive in a global marketplace, companies are business driven to squeeze as much cost as possible out of every unit produced. What's the United States to do?

One possible solution would be to impose tariffs on imported solar panels. However, this could violate international trade agreements and result in other countries retaliating by imposing tariffs on U.S-made solar and higher volume products. It would also hurt customers choosing imported products because they would have to pay more.

A better solution would be to let the market determine the prices of domestic and imported solar panels without imposing any import tariffs. However, the United States should balance the playing field by providing customers with added financial incentives to buy domestic by offering higher tax credits for solar panels produced in the United States. Massachusetts did just this with panels produced in the state in its tax credit incentive for solar PV systems made in Massachusetts. This type of indirect subsidy of domestic solar panels would bolster the manufacturing tax incentives already available to any U.S. or foreign company manufacturing in the United States.

Thoughts?