The Global Solar Cartel

Subsidies, then tariffs, and now fixing prices and quotas.

The Obama Administration and European Union are looking for ways to avoid a trade war with China over solar-energy panels. Their brilliant proposed solution? A global cartel enforced by government.

The U.S. Commerce Department set duties on Chinese-made solar cells in October after an investigation ruled that Beijing unfairly subsidizes its panel makers. The European Commission followed this month, proposing tariffs of up to 67.9%. China, in turn, threatened last week to impose duties on American and EU exports of polysilicon, the raw material in solar cells. The EU taxes are due to take effect next month.

Ending the tariffs and subsidies on all sides would be the easiest solution, though never count on Washington and Brussels to choose market sanity over political intervention. The deal taking shape will require Chinese solar firms to sell in America and Europe at above-market prices and in restricted quantities. The hope is that by guaranteeing panel makers across all three continents a profit, the green economy can power onward.

Call it tragicomic that the only way for the U.S. and EU to achieve their green objectives is to embrace China's model of state-managed capitalism. But the story is also a parable of how the cronyism inherent in the renewable-energy industry can clash with environmental goals.

American and European panel makers, notably the Bonn-based SolarWorld, SWV.XE +2.15%have lobbied heavily for tariffs, but the solar-energy producers and installers rightly complain that this will raise their costs. Higher panel prices will raise consumer prices for solar power, which is still uncompetitive despite huge subsidies.

Beijing wouldn't be supporting Chinese panel makers at all without the market for solar components that renewable-energy subsidies created in the West. In subsidizing one industry, Western governments generated clamor for trade protections in another. Washington and Brussels need to layer intervention upon intervention to keep their green agendas afloat.

This all recalls the 1980s when Washington worked out deals with Tokyo to resolve trade disputes over cars, electronics and other manufactured goods. Japanese auto makers could sell in America up to a fixed quota, for instance, and American firms were guaranteed a fixed share of the Japanese memory chip market.

"Managed trade" was the term of art for this sort of protectionism. The problem vanished when American chip makers like Intel diversified into higher-value chips in which they were superior to Japanese firms. But consumers on both sides of the Pacific were clear losers. The so-called voluntary import and export restraints kept prices artificially high.

A return to managed trade today would do similar damage. But it also underscores how the green-energy project has from the start been a politically directed exercise that depends on government to survive.

A version of this article appeared May 23, 2013, on page A12 in the U.S. edition of The Wall Street Journal, with the headline: The Global Solar Cartel.