Feed-In Tariffs for Renewable Energy and WTO Subsidy Rules: An Initial Legal Review

Abstract

This paper analyzes renewable energy feed-in tariff (FIT) programmes in the context of World Trade Organization (WTO) subsidy rules. By examining the functioning of the FIT programmes implemented by the Canadian province of Ontario, Germany and the United Kingdom (UK) the paper explores how current subsidy rules may treat FIT programmes.

The issue formally entered the halls of the WTO when a dispute was lodged with the WTO’s Dispute Settlement Body (DSB) in September 2010 over Ontario’s feed-in tariff scheme (Canada-Renewable Energy (Japan)). A second case on the same measure followed in August 2011 (Canada-Feed-in Tariff (EU)).

The FIT programme in question contains a controversial local-content provision which requires up to 60% of input of the project to be resourced in Ontario. Japan and the EU argue that this disadvantages producers outside Ontario and amounts to an illegal subsidy. In particular this decision to file the dispute under the WTO’s subsidy accord has attracted great attention.

In an effort to inform the debate on the matter, the main question that this paper addresses is whether WTO rules, specifically the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement), prohibit FIT programmes as illegal subsidies and if so, on which grounds. The paper also assesses whether there are any exceptions available, in particular whether Article XX of the General Agreement on Tariffs and Trade (GATT) could apply.

Keywords: feed-in tariff, renewable energy, SCM Agreement

JEL Classification: F14, K33, Q4