GATS, Financial Services and Trade in Renewable Energy Certificates (RECs) - Just Another Market-Based Solution to Cope with the Tragedy of the Commons?

Abstract

This paper attempts to shed some light to the relationship between new mechanisms to mitigate climate change and promote renewable energy generation, and the General Agreement on Trade in Services (GATS). Trade in Renewable Energy Certificates (RECs) is a market-based scheme that promotes energy production from renewable energy sources (RES). The mechanics of this scheme and its compatibility with a scheme allowing for trading of emission rights are also analysed. The fact that these 'green' certificates are tradable in primary or secondary financial markets raises issues that bear upon trade in services and the multilateral regulation of trade in financial services under GATS. More specifically, it is argued here that RECs are 'negotiable financial instruments' that come under the purview of the Financial Services Annex to the GATS and thus a careful examination of WTO Members' Schedules of Specific Commitments under GATS may reveal that several Members have already authorized the supply of such services in their domestic markets.