The Climate-Trade Conundrum: A Critical Analysis of the WTO’s Jurisprudence on Subsidies to Renewable Energy

Abstract

Subsidies to solar and wind energy products are on the rise throughout the world, and have been at the heart of many vexing trade disputes under the World Trade Organization (WTO) framework. The Canada–Renewable Energy/Feed-in Tariff case (Canada–FIT) is the first case where the WTO Appellate Body has addressed the trade-climate conundrum with regards to renewable energy subsidies. The Appellate Body’s ruling in this case struck down the discriminatory “domestic content requirement” of the feed-in tariff program, but kept the rest of it intact. To better understand the ruling’s implications for future climate support schemes, this paper first presents a comprehensive overview of the WTO’s past jurisprudence on subsidy issues, and then critically evaluates the Appellate Body’s ruling on renewable energy subsidies in the Canada – FIT case. The key question to be examined concerns whether the Appellate Body engaged in overly activist interpretation in its benefit analysis. This paper argues that although the Appellate Body took an activist approach in creating a separate benchmark market for renewable energy, this evolutionary approach is warranted by the uniqueness of the renewable energy sector and the interpretive rules embodied in the Vienna Convention on the Law of Treaties. The Appellate Body’s ruling in this case represented the WTO Appellate Body’s efforts to adapt to the pressing policy considerations on climate change, and to reconcile the climate support subsidies with its restrictive jurisprudence on subsidies under the Agreement on Subsidies and Countervailing Measures.