Feed-in tariffs for renewable energy and WTO subsidy rules

The 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.

Addressing climate change will require a global shift in energy supply and use, with a reduced dependence of fossil fuels giving way to an increasing share of clean air energy. In order for this to be achieved, governments may choose, amongst others, to adopt different kinds of support policies directed at sustainable energy generation. To date, some eighty countries, half of which are developing, have adopted measures to support renewable energy production. The most common tool is the feed-in tariff.

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 disputes have been famously called the first climate-change related cases at the WTO. As such they could have ramifications beyond the conflict in question and inform future climate-change related disputes.

The FIT programme subject to review contains a controversial local-content provision which requires up to 60% of project input to be sourced in Ontario. Japan and the EU argue that this disadvantage producers of green energy equipment 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.

In that regard the paper analyzes whether Article XX GATT, in particular its provisions on measures related to resource conservation and measures necessary for the protection of the environment, are available as a defence for measures adopted with the aim to combat climate change. This analysis is not limited to FIT programmes but looks more generally at measures implemented with the objective of climate protection. The paper also assesses whether this discussion and with it Article XX GATT could equally apply to other WTO agreements, in particular the SCM Agreement an issue of great importance for the interface of climate change and trade.

September 7, 2011

Source: energieclimat.hypotheses.org