5. Clean energy’s dirty secret: how can solar cut its dependence on Xinjiang forced labour?
Key Point Summary
State sponsored forced labour is endemic to China’s Xinjiang region, where labour transfer schemes and the use of conscripted and prison labour take place within an environment of extreme surveillance and coercion against Uyghurs and other minority ethnic and religious groups.
Global solar power supply chains are highly dependent on inputs from Xinjiang, with the region responsible for 45% of the world’s solar grade polysilicon – the key material in 95% of solar panels.
China’s global share in all key manufacturing stages of solar panels is predicted to rise to 95% by 2025, with Xinjiang playing a major role. This poses both an ethical and strategic risk to countries seeking to transition to green energy.
Following the enactment of the US Uyghur Forced Labor Prevention Act, other governments must act urgently to strengthen modern slavery legislation to avoid becoming dumping grounds for goods made with Uyghur forced labour.
Increasing capacity in solar production to reduce reliance on Xinjiang supply chains is a strategic and moral imperative for democratic countries. Governments must work to reduce high energy and operational costs to increase domestic solar production.
Xinjiang’s role in the global solar supply chain
China’s north-western Xinjiang region plays a major role in the global solar supply chain. Firms based in Xinjiang play a key role at each stage of the production process, from raw materials to finished product.
Raw materials: Xinjiang is estimated to hold 10% of China’s vein quartz reserves, a key raw material input for metallurgical grade silicon, which is then refined into solar grade polysilicon. The world’s largest metallurgical grade silicon producer, Xinjiang Hoshine, is also based there.
Polysilicon: At least 45% of all solar grade polysilicon – the primary material in 95% of solar panels – is produced in Xinjiang, with over 30% of the world’s supply produced elsewhere in China.
Ingots, wafers, cells and modules: Polysilicon is melted and shaped into ingots, which are in turn sliced into wafers, which are used to construct the photovoltaic cells which make up solar panels. Chinese firm Jinkosolar is the world’s 2nd largest producer of solar panels, with a 12.6% global market share in 2019. Jinkosolar produces 42% of its ingots and wafers in its Xinjiang factories.
What are the risks posed by Xinjiang’s solar supply chains?
Ethical risks
State-sponsored forced labour is endemic to the Xinjiang Uyghur Autonomous Region and is present in practically all industrial activity in the region. Since 2016, the Chinese government has interned upwards of one million Uyghurs and other minority ethnic and religious groups in Xinjiang in so-called ‘vocational training centres’, with many detainees required to work at commercial factories built within or near the detention facility. Additionally, the Chinese government has enlisted 2.6 million Uyghurs and other minority groups in ‘labour transfer schemes’ which send workers to farms and factories in the region or elsewhere in China.
While the Chinese government claims that participation is voluntary, in practice many participants are unable to refuse or exit jobs assigned to them by the government. Nearly all solar firms in the region are directly linked to either or both of these programmes, including all four of Xinjiang’s polysilicon producers and the world’s second largest solar panel producer, Jinkosolar.
By sourcing from Xinjiang’s solar supply chain, companies are thus knowingly being exposed to an extremely high risk of complicity in forced labour abuses. Companies registered in the UK, Germany, France, Australia and elsewhere are legally required to develop their own internal policies on preventing modern slavery in their supply chains, while some companies also choose to have their own policies on corporate social responsibility and sustainable development goals. Sourcing from Xinjiang will likely put companies in contradiction of these policies, as well as falling below the ESG standards expected by shareholders and consumers.
Strategic risks
Xinjiang’s role in solar panel supply chains is part of a broader trend in which solar markets have become highly dependent on Chinese production. China has cemented itself as a global leader in solar power production in a relatively short period of time, going from importing 95% of its polysilicon to producing over 75% of the world’s supply in under two decades. Analysts estimate that China’s share in all the key manufacturing stages of solar panels exceeds 80% today, and for key elements including polysilicon and wafers, this is set to rise to more than 95% by 2025.
China’s dominance in the industry comes at a time when solar power is of growing strategic importance. Solar power is the lowest cost option for new renewable electricity generation in most of the world and a key component of attempts to transition towards green energy. The IEA calculates that for the world to reach Net Zero Emissions by 2050, solar generation capacity will have to triple by 2030.
As governments across the West scramble to meet climate change commitments, the strategic implications of dependence on Chinese supply are clear. Just as the dependence of Europe on Russian gas was painfully exposed following Russia’s invasion of Ukraine, so reliance on China’s solar panels could restrict democratic countries’ room for manoeuvre in an escalating geopolitical crisis. This dependency could reduce democratic countries’ willingness to resist Beijing’s interests where needed, and increase the Chinese government’s ability to weaponise the threat of choke-points in these key supply chains. Last year, EU Commissioner Thierry Breton warned that Europe risked replacing dependency on Russian fossil fuels with dependency on China’s solar power.
Environmental risks
The production of solar grade polysilicon is an energy intensive process, with electricity accounting for around 40% of a manufacturer’s operating cost. Xinjiang is particularly attractive to solar manufacturers due to its abundance of cheap, coal-based energy. Electricity rates in Xinjiang are as low as $0.03 per kwh, less than half the average US rate in 2021. However, this also means that solar panels produced in Xinjiang will carry a larger carbon footprint than those produced by a greener energy mix. While coal power accounts for over three quarters of Xinjiang’s electricity generation, Germany (also a major solar producer) uses coal power for just a third of its electricity mix. Xinjiang’s solar production is cheap but carries a hidden environmental cost, diminishing the environmental benefits that solar panels bring to energy production.
How can solar clean its supply chains?
The solar industry’s dependence on Xinjiang supply chains poses major ethical, strategic and environmental risks. Cutting this reliance requires a range of demand and supply side solutions, both giving solar producers incentives to move production out of Xinjiang while also developing alternative supply chains elsewhere.
Strengthening modern slavery legislation
Most democratic countries have some form of modern slavery legislation, but it is rarely effective in stopping the import of goods made with forced labour. For example, while the UK’s Modern Slavery Act requires companies to publish a modern slavery statement outlining their efforts to remove forced labour from its supply chains, it provides no powers to penalise companies that fail to implement their plans. By contrast, the new German Supply Chain Due Diligence Act is much stronger in penalising companies that fail to take adequate actions to avoid, prevent or remedy forced labour abuses in supply chains.
In the proposed EU mandatory due diligence legislation, businesses which fail to take adequate steps to eliminate modern slavery from their supply chains could be liable to pay damages to those impacted and company directors could face disqualification. Such legislation could be further strengthened by establishing minimum standards of supply chain disclosure. By requiring companies to trace and publish their full supply chains, consumers, civil society organisations and law enforcement agencies will be much better placed to scrutinise forced labour risks.
An alternative approach is the US Uyghur Forced Labor Prevention Act which places a presumptive rebuttal on all goods made in Xinjiang. While such an area based approach is unusual, by transferring the burden of proof onto firms it can be highly effective in forcing companies to move supply chains away from regions of high risk. The comparative effectiveness of the US Uyghur Forced Labor Prevention Act means that any country that does not have a comprehensive strategy to exclude Uyghur forced labour from its markets will find itself a dumping ground for the products that can no longer be imported into the U.S.
Developing alternative solar supply chains
Despite China’s growing dominance, the US, South Korea, Japan and Germany remain important players in the solar industry. In recent decades governments in these countries have focussed largely on state investment in research and development initiatives, or by boosting demand for solar panels through ‘feed in tariffs’ and other consumer incentives. To increase production capacity across the solar supply chain, governments will need to address supply side issues, including supporting capital expenditure and reducing operational costs for solar firms.
While the EU’s recently announced Solar PV Industry Alliance aims to facilitate further investment in the solar sector, industry leaders have pointed out that without dedicated funds to build and run solar factories European manufacturers will still struggle to compete with the benefits gained by Chinese firms. Measures to achieve this could include subsidised energy prices for solar producers, particularly in the energy intensive process of producing solar grade polysilicon, and loans, grants or tax-credits for building, expanding and operating solar production facilities. The US government’s tax incentives for solar manufacturers could see the US become the cheapest cost region for solar power production globally.
The international solar supply chain is complex and it may be beyond the budgetary constraints of any one government to seek to on-shore the end to end production process. In these cases a ‘Friend-shoring’ approach may be more appropriate, with like minded countries working together to ensure that all stages of production are covered between the partnering countries. Initiatives designed to increase resilience of semiconductor supply chains, such as the ‘Chip 4 Alliance’ between the US, Taiwan, Japan and South Korea, could be replicated by key solar manufacturing countries or multilateral bodies such as the G7.
Recommendations
Strengthen modern slavery legislation and enforcement. Adding penalties for companies and their directors who fail to remove forced labour abuses from supply chains will provide a clear incentive for firms to implement their modern slavery action plans. Establishing minimum standards of supply chain disclosure will ensure that firms know and are held accountable for their supply chains.
Support alternative solar supply chains. Governments should provide grants, loans or tax credits for firms looking to build or expand solar production capacity, and reduce high operational costs for solar producers through subsidised energy prices – particularly at the early, energy-intensive stages of supply chains.
Foster international supply chain cooperation. Multilateral solar initiatives should be formed to identify areas for increased trade, investment and research collaboration at different stages of the solar supply chain. For example, the EU’s Solar PV Industry Alliance could be replicated at a G7 level, or between major solar producers such as the US, South Korea, Germany and Japan.