World Trade Organization, Renewable Energy Subsidies and the Case of Feed-In Tariffs: Time for Reform Toward Sustainable Development?
31 Pages Posted: 16 Dec 2015 Last revised: 3 Mar 2016
Date Written: December 1, 2015
Renewable energy subsidies are crucial for combatting climate change, and yet the world’s international legal infrastructure is not designed to accommodate such subsidies. The world needs a renewable energy sector to develop and implement the technologies necessary to reduce carbon and renewable subsidies are one of the best ways to cultivate this sector quickly. At the same time, one country’s unfair subsidies can harm another country’s industry. To take a recent newsworthy example, China’s subsidies for its solar exports has allegedly bankrupted solar companies in the United States (US) and European Union (EU), undermining this crucial sector in these countries as it takes root. Thus, renewable subsidies pit two legitimate policy concerns against each other: cultivation of renewable energy and prevention of unfair trade practices.
The World Trade Organization (WTO) regulates most subsidies effectively, but was simply not designed with renewable subsidies in mind. The Agreement on Subsidies and Countervailing Measures (SCM) – the heart of the WTO subsidies regime – treats renewable subsidies the same as all other subsidies, without an environmental exception in force that takes into account non-trade concerns. This environmental blind spot is unusual for the WTO: for example, Article XX of the General Agreement on Tariffs and Trade (GATT) includes an environmental exception for tariffs and other non-subsidy measures. However, an environmental exception did not make it into the SCM, leaving the agreement ill-suited to balance trade and environmental concerns.
This article proposes several legal solutions to fix the SCM’s environmental blind spot – invocation of the Agreement on Agriculture (AoA) for some subsidies, using the SCM’s definition of subsidies to exclude some forms of support for renewable energy — especially Feed-in Tariffs (FITs) - from the WTO’s subsidies regime entirely, adopting a flexible interpretation of GATT Article XX’s environmental exception such that it may apply to subsidies, and negotiating a new WTO agreement for renewable subsidies. Of all the solutions proposed, this article argues that the best approach would be to apply GATT Article XX to the SCM. This approach is not obvious, because WTO law does not make clear the relationship between the GATT and the SCM. Nevertheless, strong legal and policy reasons support this approach.
This article proceeds as follows: Part II provides background, first on renewable subsidies, then on the current WTO regime governing subsidies. Part III discusses the proposed legal solutions to the WTO’s green subsidy problem. Part IV compares the proposed solutions and concludes that applying Article XX to the SCM is the best approach.
Keywords: World Trade Organization, WTO, GATT, Sustainable Development, Environment, Energy, Feed-in-Tariffs, Subsidies, Financial Contribution, Ethanol, FIT, Climate Change, International Environmental Law, Local Content Requirement, China, Agriculture, Green, Tax Incentives, Loans, Price Support
JEL Classification: K33, K32, F02, H23, L95, L50, L55, N70, N75, Q20, Q28, Q30, Q32, Q38, Q40, Q48
Suggested Citation: Suggested Citation