Renewable energy, particularly solar, is a vital component in meeting our carbon commitments and mitigating the effects of rising temperatures that have wreaked havoc around the planet. Nonetheless, this opportunity must not take place at the expense of workers involved in producing solar panels. Ignoring the human rights aspects associated with renewable energy value chains can also create significant risks for businesses.
- Growing demand for renewable energy worldwide & equity considerations
The growing global recognition of the need to move away from fossil fuels has hastened the transition towards renewable energy sources. With increasing tax incentives, climate pledges, and other international commitments, the market is ripe with renewable energy initiatives across the globe. In the US alone, solar installations grew 40% year over year in 2020 and the market is predicted to quadruple by 2030. Globally, there is palpable excitement around lower installation costs, and a sense of boundless opportunity for what some analysts are calling the “solar decade.”
Concerns over equity in this transition have tended to focus on how to include emerging and developing countries, energy democracy, or job creation and upskilling to make up for changes in the workforce. As part of their 2021 Energy Outlook, the International Energy Agency mentions that the “purpose of the transformation of the energy sector is to improve lives and livelihoods. Alongside the benefits of avoiding the worst of climate change, this means enabling citizens to seize the opportunities and navigate the disruptions caused by the shift to clean energy technologies”. Yes, and it also means including the workers in the value chains that make these products possible.
Although often dubbed “clean energy”, solar, along with wind, geothermal, tide, etc. rely on technically sophisticated products with complex production processes. Including the entire value chain in the way we conceptualize “clean energy” is crucial in following through with the promise and opportunity that renewable energy can bring to our planet and our people. Although wind energy leads the way in terms of growth, this post will focus on solar (2nd in terms of global growth) as there are well-documented risks in that value chain.
- Risks for forced labor in solar value chains
- Solar panels manufacturing
Making solar panels starts with mining quartz and metallurgical grade silicone. China produces 80% of the global supply of polysilicon and four companies in Xinjiang control 45 to 50% of the world’s polysilicon production that is then sold to ingot, cell, and wafer manufacturers. Again, the level of market concentration is enormous: 97% of wafers for solar panels come from China and one of the major module manufacturers is co-located in an internment camp. Paradoxically, Xinjiang has become a hub for silica production for solar panels because it has easy access to cheap coal for generating the extremely high temperatures necessary for the manufacturing process.
Image Source: Solar Reviews (2021)
As has been widely documented, production in Xinjiang (XUAR) has been tied to an increasing number of allegations of forced labor and the oppression of ethnic and religious minorities that have resulted in trade actions from the US, UK, and Canada among others. Chinese authorities continue to deny the allegations.
Over the past year and a half, U.S. Customs and Border Protection has increasingly used Withhold Release Orders (WRO) to ban the imports of products made with forced labor. In June of 2021, the US issued a WRO against Hoshine Silicone Industry, the world’s largest silicone manufacturer. This effectively prevents the import into the United States of any product that contains inputs from that manufacturer. Shortly thereafter, the U.S. Senate passed the Uyghur Forced Labor Prevention Act. If it becomes law (it has not yet been approved by the House of Representatives) importers of goods from this region would have to proactively demonstrate that it is clear from forced labor. In other words, forced labor has created a continuity risk for the renewable energy and solar sectors.
Before the WRO, polysilicon prices had already risen to a 9 year high and many are wondering if the US will be able to meet its climate goals without sourcing from Xinjiang. As of now, the government has not wavered on its dual priorities. The Homeland Security Secretary stated at a press release when the WRO was announced that “[o]ur environmental goals will not be achieved on the backs of human beings in a forced-labor environment.”
- How businesses should respond
The Solar Energy Industries Association recognizes the risks that are currently present in its value chain and has responded in various ways. In February of 2021, 175 companies signed a forced labor prevention pledge spearheaded by the Association. By September of this year, more than 295 companies had signed and committed to “helping ensure that the solar supply chain is free of forced labor and raising awareness within the industry on this important issue. (…) [W]e support the development of an industry-led solar supply chain traceability protocol as a tool for identifying the source of primary raw materials and inputs and tracking their incorporation into finished products (…)”. Additionally, it has developed an industry code of conduct and recently released a traceability protocol.
Traceability is a helpful first step to know the origin of a product. Nonetheless, it is important that solar manufacturers do not bifurcate their supply chains and continue to procure from high-risk areas as inputs for products sold to less regulated markets that don’t have restrictions on forced labor. Likewise, companies that are investing in solar equipment or looking to buy renewable energy should practice due diligence and inquire on the origin of the panels and the processes in place to ensure safe working conditions.
Image source: Eventide Asset Management (2021)
Eventide, an asset management firm, has advocated for a three-phase response for the solar industry that follows the tiers involved in making a solar panel: phase one involve es module makers, phase 2 involves the polysilicon providers, and phase three involves raw material providers. Given the significant human rights risks involved in sourcing from Xinjiang, several groups have called for ceasing contracts with any supplier/mine/facility in the area.
Beyond the solar industry, this case has lessons for companies across sectors that source raw materials around the world. Transparency is important in all value chains. Researchers from the MIT Sloan School of Management have found that by increasing transparency in supply chains, businesses can “proactively address regulatory and activist requirements, shape new market trends, and create new business opportunities for themselves.” Implementing a responsible sourcing policy requires a leadership commitment to respecting human rights across the value chain that is reflected in a vendor code of conduct or analogous document, developing internal processes that operationalize this commitment (including supplier selection processes, training for procurement teams on good purchasing practices, among others), continuous communication with stakeholders, and a thorough understanding of salient risks in their supply chain. As a first step, companies can start by mapping their supply chain and employing a robust risk management approach to prevent, mitigate, and address prioritized issues.
Reach out to learn more about how we can support you in implementing a responsible sourcing program and increasing visibility into your value chain.