The World Trade Organization has reportedly found that India’s solar power subsidies violate global trade rules. According to the Wall Street Journal:

In a report sent to India and the U.S. late last week, the dispute settlement panel of WTO stated that New Delhi violated trade rules by imposing the local purchases under its federal solar program, one of the officials, who didn’t want to be identified, said.

The panel also ruled against India’s incentive policies for domestic solar companies to manufacture solar cells and modules in the country, the official added.

This outcome was not surprising. Conditioning the receipt of subsidies on the use of domestic goods is generally prohibited by WTO rules. A Canadian scheme was successfully challenged on similar grounds just a few years ago. 

The ruling ought to be celebrated by advocates of solar power. The local content requirement acts as a drag on the program by making solar power plants more expensive to build. Allowing solar energy producers to purchase panels on the global market not only reduces prices for those producers, it also furthers the development of efficient supply chains for solar panel production. Those panels may be made in China, Europe, the United States, or some combination thereof instead of India.

Of course, the whole solar power industry is a big mess of subsidies and other politicized incentives. Many countries have mixed the goal of reducing greenhouse gas emissions with industrial policy designed to create “green jobs.” This has led some governments, including the United States, to impose protectionist tariffs on products they subsidize. The urge to pick winners and loser is simply too strong for governments to resist.

The Indian case is an example of how WTO rules designed to reduce protectionism can help at least limit the role of industrial policy as governments’ intervene in markets to increase the use of renewable energy.