The Wrong Rules for the Right Energy: The WTO SCM Agreement and Subsidies for Renewable Energy

Abstract

In the past 18 months, three cases (China – Wind Turbines, Canada – Renewables, and Canada – Feed-In Tariff) challenging the legality of government support for renewable energy came into the Dispute Mechanism System of the World Trade Organisation (WTO), highlighting problems surrounding the ambiguous legality of such objectively desirable measures. Set against a backdrop of increasing anthropocentric climate change and the vast growth of the green economy, the international trade rules that govern subsidies for renewable energy must be re-assessed. This paper examines the relevant provisions of the Agreement on Subsidies and Countervailing Measures (SCM) that create the legal problems manifested in the disputes. Advocating greater flexibility in the disciplines for subsidies, to allow those subsidies for which the positive externalities of climate change mitigation may outweigh the negative trade-distorting effects, the paper continues to explore three potential avenues of change – the clarified application of an exception under article XX of the GATT, the pursuance and conclusion of a comprehensive energy agreement in the WTO, and the creation of a system of subsidy management and exemption delegated to an expert, neutral, international organisation. Taking into account both the pressing need for change and the current impasse within the Doha Round Negotiations, the paper advocates the last option as the most effective and feasible way to ameliorate the current rules.