Incentive schemes to promote renewables and the WTO Law of subsidies: World Trade Forum 2007

Transcription

1 Incentive schemes to promote renewables and the WTO Law of subsidies: World Trade Forum 2007 Sadeq Z. Bigdeli IP 6 (Energy in WTO Law and Policy)

2 Context: Move towards law carbon economies How best to promote renewable energy ( RE )? Market-based instrument: Carbon tax and/or cap & trade systems Incentive schemes to promote RE other than subsidies: mandatory targets Last option (least efficient): fiscal and financial incentives or subsidies (RE sector, energy efficiency, related R&D)

3 Question: Incoherence between two international regimes? No legal conflict between WTO law of subsidies and climate regimes because: Neither any subsidy obligation under the Kyoto regime Nor a per se prohibition of subsidies under the WTO (ASCM) unless: Subsidies contingent upon export: 3.1(a) Import substitution subsidies: 3.1 (b) Potential constraints of WTO law of subsidies on climate protection policies? The main question remains as to actionability of RE subsidies

4 ASCM architecture of subsidy disciplines Financial Contribution by a government or Income or price support (in the sense of GATT Art. XVI) and Benefit is a Subsidy Article 1 Prohibited Subsidies Part II Subsidies contingent on export performance Subsidies contingent on import-substitution Adverse Effects (Art. 5) Specificity Art. 2 Banned! Actionable Subsidies Part III&V other

5 1. Straightforward subsidies: Financial contributions that confer benefit by definition*: Grants: (including capital grants and R&D grants): Energy Policy Act of 2005 provides for $4 Billion for the period of only for Ethanol R&D No green light for R&D subsidies under the ASCM Tax credits: e.g. The largest bulk of the US Federal subsidies on biofuels are in the form of volumetric excise tax credits e.g. Production Tax Credits for renewable electricity (1.5 cent/kwh) Loan guarantees and favorable loans: e.g. Sections 1510 and 1511 of the EPA 2005 *As opposed to Howse et al (2006) on the notion of benefit

6 2. Are tax exemptions on the basis of environmental objectives subsidies? US FSC does not place value on object of an exemption. One caveat: carbon tax exemptions? The example of Swiss Climate Cent (CHF per litre) to be levied on gasoline and diesel fuels with a full exemption given to biofuels.

7 3. Indirect subsidies (downstream or upstream subsidies): The WTO law does not require for a subsidy to exist that a recipient of a financial contribution and benefit be identical. (US Lead Bars) However there is a need for a pass-through analysis. (Canada Aircraft, US Lumber, etc.) Pass-though in upstream subsidies, such as consumption subsidies could be automatically presumed. [e.g. see Koplow (2006)] Subsidies to inputs to RE might only be considered an indirect subsidy if a passedthrough benefit is demonstrated.

8 4. Subsidization through regulatory means: Minimum quota measures: Renewable Portfolio Standards prevalent in the US; These are NOT subsidies under the ASCM Minimum price requirements: Feed-in law tariffs in 41 countries mainly EU Might involve subsidies depending on the definition of price support (Article 1) A prohibited subsidy if applied discriminatorily (Art. 3.1.b) [e.g.preussenelektra case]

9 Fuel Ethanol and the AoA: A Subsidy Discipline Analysis Inconsistency in biofuels classification and implications for subsidy disciplines Under Chapter 22 => Covered by AoA! Ethanol subsidies as green box subsidies under the AoA? Could be the case, but US current subsidies do not meet green box criteria! Ethanol and ASCM applicability after the expiry of the peace clause: double-discipline for Ag products

10 Electricity Trade and Relevant Subsidy Disciplines Classification problem still exists: Optional heading as a commodity in the HS system => lack of consensus among Members Implication for subsidy discipline is grave: GATS does not contain hard law provisions on subsidy disciplines Practical considerations: EU and NAFTA: elec. covered by trade in goods ASCM applicability: an extra push for moving toward wide recognition of electricity as a good

11 RE subsidies and Specificity requirement RE subsidies might prove to be specific in most cases due to relatively small size of RE industries worldwide: Biofuels subsidies are specific. (even in large producing countries) Exception might be feedstock subsidies. Non-hydro electricity subsidies are specific. Hydro should be examined on a case-by-case basis.

12 Possibilities on a WTO Challenge of RE Subsidies Abundance of specific subsidies in the RE sector => A violation might be found if trade adverse effects demonstrated. In biofuels with expansion of RE trade: potential for a developing v. developed case on a serious prejudice basis. (Art. 6.3) In electricity with expansion of RE trade : R-Electricity trade expands only with market liberalization, Third Party Access and investment in interconnection capacities. Potential for cases on RE inputs/technologies.

13 Suggestions on the way forward (i) reviving the green box? Fragmentation between trade and climate regimes: one encouraging RE promotion policies and the other restraining them? Removing RE trade barriers is the best way to move forward. Domestic subsidies function as barriers against efficient RE producers. Reviving a broad green light category is not the solution. Considered only to a limited extent. (CVD and R&D)

14 Suggestions on the way forward (ii) or creating a red box? Potential for reinforcement: The major contribution of the WTO subsidy regime to the climate protection regime lies in the other side of the equation: Subsidies to fossil fuels: estimated at $ Billion (World Bank, IEA) These subsidies by far exceed RE subsidies They are one reason for the current un-level playing field In any case, fossil fuels are more competitive and will remain dominant in energy markets! An inconsistent policy: carbon taxation v. subsidies!! Fisheries negotiations as a model