Australia leads the world in rooftop solar adoption. Millions of households have invested in panels, turning the country into a giant generator of clean electricity. Yet, despite this massive market, Australia imports nearly every component used in these systems. This gap between consumption and production has led finance journalist Alan Kohler to suggest that tariffs would be necessary to kickstart the local solar sector. His proposal is a direct response to a market that relies entirely on foreign supply chains. While the idea of taxing imports is controversial, Kohler argues it is the only way to build a real industry at home.
The current situation is precarious. Australia has the sun, the land, and the demand, but it lacks the manufacturing base to control its own energy transition. We send money overseas for hardware while missing out on local jobs and industrial growth. This dynamic creates a reliance on global shipping and foreign factories that could be disrupted at any moment.
Why Australia Needs a Domestic Solar Industry
Building a local solar industry offers more than just environmental benefits. It is a matter of economic strategy. When a country manufactures what it installs, it keeps wealth within its borders.
- Job Creation: Factories require workers. From assembly line operators to logistics managers, a local solar industry would create thousands of steady, full-time jobs. These roles provide income for families and support local towns.
- Investment Opportunities: A local manufacturing sector attracts investors. When companies set up shop to make panels, they also bring secondary industries, such as plastic molding, glass production, and electronics repair.
- Reduced Reliance on Imports: Right now, Australia is at the mercy of global shipping costs and supply chain bottlenecks. If a major port closes or a trade route is blocked, solar supplies dry up. Producing panels locally puts the control back into our own hands.
Beyond economics, there is the issue of energy security. Solar is no longer a hobby; it is a critical part of the national power grid. Relying on other nations for the technology that keeps our lights on is a strategic risk. A domestic industry ensures that we have the parts we need, regardless of geopolitical tensions or trade wars.
Current Challenges Facing Australian Solar Manufacturers
If making solar panels locally is such a good idea, why are we not already doing it? The barriers are significant. Overseas manufacturers, particularly in China, have spent decades refining their processes to achieve massive scale.
- Cost Competitiveness: It is very difficult to compete with a panel made in a factory that produces millions of units every year. The price gap between an imported panel and a locally made one is huge. Without some form of price protection, a local startup cannot match the low retail price of global competitors.
- Scale of Production: Manufacturing is a game of scale. You need to produce at high volume to lower the cost of each individual unit. Australia lacks the existing infrastructure to reach these numbers quickly. Starting from zero means higher costs for at least the first few years.
- Supply Chain Vulnerabilities: Even if we assemble panels here, we still need to import raw materials like polysilicon, silver, and copper. This means we are still exposed to global price fluctuations, even if we move the final assembly process to Australian soil.
Understanding Alan Kohler's Tariff Proposal
Alan Kohler’s argument centers on the idea that the market will not fix itself. Without government intervention, the cheaper, foreign-made product will always win.
What Tariffs Entail for Solar Components
A tariff is a tax on goods brought into a country from abroad. If the government placed a tariff on imported solar panels, the price of those panels would go up. The goal is to make the imported product expensive enough that a locally manufactured alternative becomes a competitive choice for buyers.
This would likely start with targeted tariffs on specific components. Instead of taxing everything at once, the government could apply a duty to solar cells or pre-assembled panels. This forces installers to look at the price of local options and potentially choose them if the price difference shrinks.
Kohler's Rationale: Stimulating Local Demand
Kohler points out that other industries have been built this way. He argues that we have allowed our manufacturing base to wither by letting low-cost imports flood the market without consequence. By adding a tax to these imports, we create a "floor" for prices.
This artificial price hike does two things. First, it makes it easier for a local manufacturer to price their goods at a point that covers their production costs while still being attractive to buyers. Second, it signals to investors that the government is serious about protecting local production, which encourages them to put money into new factories. It is a long-term play for industrial self-sufficiency.
Potential Benefits of Implemented Tariffs
If tariffs were applied, the most immediate impact would be on the labor market. A surge in manufacturing activity would require a new wave of workers.
- Manufacturing Jobs: We would need people to build panels, maintain machinery, and manage quality control. These roles provide a path to stable employment for thousands of Australians.
- Skills Development: Setting up these factories requires specialized knowledge. This would drive investment in vocational training and university programs focused on material science and electrical engineering.
- Regional Development: Factories do not have to be in big cities. Building solar hubs in regional areas would breathe new life into towns that have been hit by the decline of other manufacturing sectors. It creates a reason for people to stay and work in their communities.
Energy independence is the final piece of the puzzle. When you own the supply chain, you own the infrastructure. This means fewer delays for solar installers waiting for stock and a more resilient power system that does not depend on international freight lanes.
Addressing the Criticisms and Challenges
Critics of Kohler’s plan point to the obvious downside: higher costs. Tariffs are paid by the buyer. If the government taxes imported panels, the cost of installing a home solar system will rise.
- Higher Solar System Prices: Households wanting to go solar would face a larger bill. This could slow down the adoption rate if people decide that the higher price is not worth the investment.
- Impact on Solar Installers: If solar becomes too expensive, demand will drop. Installers rely on volume to keep their businesses running. A slump in the market could hurt the very people who install the clean energy tech we need.
- Affordability: The transition to green energy is already expensive for many families. Adding a tax to panels makes it harder for average Australians to lower their power bills.
There is also the risk of retaliation. International trade is built on agreements. If Australia places tariffs on imported solar gear, other countries might decide to tax Australian exports like wine, wheat, or coal. This could start a trade war that hurts more sectors than it helps. Furthermore, the World Trade Organization has strict rules against tariffs that act as hidden subsidies for local industries.
The Practicality of Establishing a New Manufacturing Sector
Even with tariffs, there is no guarantee that a local industry will succeed. Building a factory is not just about having money; it is about having the right machines, the right patents, and the right expertise.
- Investment Requirements: We are talking about billions of dollars in capital expenditure. The government would likely need to offer grants or loans to bridge the gap between the initial high costs and the point where the factory becomes profitable.
- Technological Advancement: The solar industry moves fast. A panel made today might be obsolete in five years. Any local manufacturer must keep up with constant shifts in design and efficiency.
- Time to Scale: It takes years to build a production line. During those years, the country will still be dependent on imports. We cannot build a fully independent industry overnight.
Moving Forward: Alternatives and Complementary Strategies
Tariffs are one tool, but they are not the only one. Other strategies could help build the industry without pushing prices up as much for consumers.
- Subsidies and Grants: Instead of taxing imports, the government could pay a portion of the cost for local manufacturers to get started. This makes local panels cheaper to buy without taxing the foreign ones.
- Tax Incentives: Offering tax breaks to companies that source parts from Australian suppliers would encourage local buying without creating a trade dispute.
- Investment in R&D: Australia has excellent universities and research labs. Funding them to create the next generation of solar technology, like perovskite cells, could give us a competitive edge that does not rely on outdated manufacturing models.
We could also focus on niche manufacturing. Australia does not need to build every single type of panel. We could specialize in high-value components or smart electronics that manage power loads, which are critical for the next phase of the energy grid.
Conclusion: Weighing the Future of Australian Solar
The question raised by Alan Kohler is simple but loaded: do we pay more now to own our energy future, or do we continue to take the cheaper route and remain reliant on the rest of the world?
Tariffs offer a way to force the growth of a local solar industry by shielding it from the intense pressure of global competition. This could lead to a wave of new jobs and a more secure energy supply. However, it comes with a real cost that will be felt by the average household and local businesses.
A smart policy is likely to be a mix of approaches. While tariffs could provide a necessary jumpstart, they must be paired with subsidies, R&D support, and a focus on high-value technology to be effective. Relying on one single lever like trade taxes is risky. The goal is to build a sector that is not just protected, but one that is also innovative and efficient enough to stand on its own in the long run. If we want a local solar sector, we must be willing to put in the work and the investment to make it happen properly.
The Albanese government needs to start considering tariffs, especially high ones, if it is serious about reintroducing solar panels manufactured in Australia.
Manufacturing solar is a bad business. The only ways to generate any revenue are by requiring your residents to purchase pricey locally produced goods or by using cheap labor and massive scale, neither of which are available in Australia.
In order to unveil Solar Sunshot, a $1 billion initiative that would "supercharge Australia's desire to become a renewable energy super power at home and internationally," Prime Minister Anthony Albanese traveled to the Hunter Valley a week and a half ago with no fewer than five ministers.
The prime minister said in front of the cameras, "We can either be afraid of the future and do nothing like we did in the last ten years, or we can take advantage of the opportunities that come with the shift to net zero."
According to the press release, the Australian Renewable Energy Agency (ARENA) has been tasked with designing the program in collaboration with industry, which is more than willing to assist it in identifying methods to save taxpayers $1 billion. The opportunities will be taken advantage of through "subsidies and grants."
Eking out a portion of China's 99 percent market share would be the goal of any local solar panel company receiving subsidies.
Although the precise amount of money spent by the Chinese government to achieve its current global solar dominance is difficult to determine, it appears to have been US$70 billion in 2022 and US$130 billion in 2023, or more than A$300 billion over two years—300 times the amount the Australian government plans to spend.
Along with the evident futility, there is more than a hint of irony in all of this.
Shi Zhengrong, a young Shanghai engineering graduate who studied the craft in Sydney in 1989 as a foreign exchange student, founded Suntech, the first Chinese manufacturer. At the time, a research team from the University of NSW was at the forefront of solar cell efficiency research and developed a cell design that would eventually become the industry standard.
After completing a PhD and studying with the team at UNSW, Shi returned to China in 2000 to launch Suntech. "I have been asked a lot why I started the firm in China instead of Australia," he told the ABC. I was not at all confident in my ability to manage a business there. Additionally, labor costs are rather expensive in Australia.
At the time, BP Australia operated the biggest solar manufacturing facility in the Southern Hemisphere, located in Sydney's Olympic Park. When BP shut it down in March 2009, there was a mass flight of companies producing renewable energy. For example, the wind power company Vestas shut down a factory in Australia in 2008, while the solar thermal producer Ausra relocated from New South Wales to California.
Two decades after China's industry began with Australian research, we are now investing $1 billion to revive it, and the People's Republic of China is now investing 300 times as much money in it.In a press release announcing the trip, US Treasury Secretary Janet Yellen stated that she was in China over the weekend to "press Chinese counterparts on unfair trade practices and underline the global economic consequences of Chinese industrial overcapacity" in an attempt to dissuade them from flooding the world with inexpensive solar panels.
"We do not want to be unduly dependent and they want to monopolize the market," she stated in a Wall Street Journal interview prior to her departure. We will not allow that to occur
People like me were raised with the belief that you should always send a thank-you note when someone sends you inexpensive products. Standard economics essentially states that. Never again would I say, Send a thank you note.
Michael Pettis, a longtime China watcher and senior scholar at the Carnegie Endowment, summarized the strong, conventional economic case for the thank-you letter on Twitter in response to Yellen's interview: "People are not just customers." They are also producers, and their level of consumption is determined by their output rather than the affordability of consumer goods.
Economists are discovering that huge trade imbalances do not boost consumption of low-cost items. They mostly raise debt.
However, that is only effective if the people are able to generate anything in a sustainable manner.
Will Janet Yellen be able to stop the Chinese government from supplying the world with low-cost solar panels and thwarting the Biden Administration's efforts to use the Inflation Reduction Act to develop a renewable energy sector in the United States?
Obviously not! The Chinese will smile pleasantly and continue to fulfill their 5% GDP growth objective by manufacturing electric cars and renewable energy on an export-led basis rather than domestically, as the rest of the world would like.
China's domestic consumption proportion of the economy is 37%, while the global average is between 50% and 70%. The eagerness of the government and business sectors to invest is a major contributing factor in this.
As a result, since China began increasing capital expenditure after the Great Financial Crisis, its efficiency has been decreasing, going from 2.6 (dollars of investment required to produce a dollar of GDP) to 3.9. However, in response to this, Chinese regulators are punishing the investment horse more severely, and it is unlikely that Janet Yellen's visit will change that.
Compared to the US, Australia has a far lower chance of developing a manufacturing sector for renewable energy. Yellen herself is implying that a tariff on their imports is the only thing that can do this.
I am not suggesting that; on the contrary, I am merely stating that there is nothing else that will work. Also, the tariff would most likely need to be greater than the 40% on automobiles that was in effect when Ben Chifley triumphantly watched the first FJ Holden come off the production line at Fisherman's Bend, Victoria.
The Australian auto industry disappeared when the tariff was lowered to 5%.
China would not respond well either, and decades of economic dogma would need to be disproved. They are still limiting meat and lobsters, and they have only recently removed the prohibitions on Australian wine that were in place four years ago when Scott Morrison had the audacity to propose that an investigation into the origins of the SARS-Cov-19 virus be conducted.
However, they would most likely simply devalue the yuan to preserve their dominance in solar panels.
Instead of making them, we should just thank them for the inexpensive solar panels.
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