Renewable energy support programs - Need for a new law?

Came across this recent paper titled "Governing Clean Energy Subsidies: What, Why, and How Legal?" on renewable energy programs and WTO law which was very similar to the analysis I had made in my paper.Tracing the various forms of support renewable energy programs get across the world and the rising tensions it causes in trade relations especially related to compatibility with WTO law, the authors have recommended some steps to address the issue:    

"Recommendation 1: International institutions with rules governing trade, energy flows and climate change need greater coordination.
A new framework for trade rules on clean energy subsidies could consider not only the adverse and non-adverse impacts on other countries, but also the purpose of the measure: energy access, boosting clean energy generation capacity, building a domestic manufacturing base, or expanding export potential. If subsidies were used, for instance, for extending grid connections to RE sources (whether project developers are domestic or foreign firms), they should not be challenged. Again, if subsidies were offered to acquire intellectual property for emerging clean energy technologies, no adverse impact is caused even as a country is able to expand its clean energy generation capacity. Currently, however, such exceptions are not explicitly permitted under WTO rules, and until these issues are resolved, such policies might continue to attract trade disputes. Therefore, there might be a case for clarifying rules for sustainable energy under future trade-related initiatives for sustainable energy, including possibly a separate agreement – a Sustainable Energy Trade Agreement (SETA) – that could set out key principles for what would be permissible subsidies, especially if they are for non-mercantilist purposes like increasing clean energy generation capacity or offering energy access.

Recommendation 2: Common metrics to count subsidies can help to increase transparency.
Unless clean energy subsidies are measured in a transparent manner, there could be greater danger of misinterpretation and potentially more trade disputes arising. Use governmental, intergovernmental (United Nations Sustainable Energy for All initiative) and non-governmental sources of information on clean energy subsidies but standardise them to enable inter-country comparisons.

Recommendation 3: The relationship between rationalising fossil-fuel subsidy programmes and the use of subsidies to promote clean energy sources should be further investigated.
The G-20 could be an ideal forum to undertake analysis and discuss this relationship.

Recommendation 4: Establish the purpose of government support.
Currently, no forum exists where governments can discuss their reasoning for clean energy support programmes.

Recommendation 5: Meanwhile, independent assessments of alleged adverse impacts of subsidy policies could reduce the threat of unilateral trade sanctions or other penalties.
These assessments could occur through WTO Trade Policy Reviews, at the Committee on Regional Trade Agreements, or the United Nations Industrial Development Organization. Such assessments could also examine the impact of subsidies in promoting clean energy research, development, deployment and commercialization." 

Experts have called for a new international legal framework for renewable energy within the WTO. WIll the rise in trade disputes in the renewable energy sector, the decision in the Canada Feed-in tariff case and growing importance of renewable energy in the energy mix of several countries force members to the negotiating table? Or with the Doha round faltering, is this too much to ask?

Hat tip to R.V.Anuradha for alerting me on this one!

No to "Amicus Curiae" briefs - Analysis of the Canadian FiT case: Part I

The Canadian FiT case (WT/DS412/426) in the WTO does bring to the fore many issues concerning local content in Feed-in tariff programmes. The WTO Panel essentially found that the domestic content requirement in Ontario's Feed-in tariff program was inconsistent with Canada's obligations under GATT and TRIMS and violated the national treatment principle by providing a less favorable treatment to imported goods as compared to local goods.It however declined to hold the measure as a subsidy since it felt that no "benefit" was conferred. I have blogged on the issue here, here and here.

The WTO panel decision was the first instance where the WTO dispute settlement mechanism decided on renewable energy programs compatibility with WTO law. While the case is a fertile ground for discussion on issues of violation of national treatment, TRIMs as well as the ASCM, it has major implications for FiT programs that are implemented across the world. The applicability of the defence of Article III:8(a) GATT to a GATT and TRIMs violation has been aluded to in detail. The concepts of "financial contribution" and "benefit" in the ASCM have been authoritatively explained.  I recently completed a paper on Renewable Energy Support programs which is available here and may have to revisit the conclusions in the light of the findings here.

While the decision is almost certainly to be appealed against and will be legally dissected by experts in the coming days, I will, through a number of posts in this blog in the coming days, touch upon important issues that the panel report addressed.

Here is part I of the series. For starters, I found this interesting about the Panel report:

1. The panel was chaired by Thomas Cottier who is considered an authority on WTO law and the intersection of trade and environment. he has also extensively written on energy and WTO law.

2. Regarding amicus curiae briefs, the panel seemed to be lukewarm to several "unsolicited" briefs. It held:

"D. AMICUS CURIAE BRIEFS 

1.12 On 14 May 2012, the Panel received an unsolicited amicus curiae brief relating to both disputes from the following organizations: Blue Green Canada; the Canadian Auto Workers (CAW); the Communications, Energy and Paperworkers Union of Canada (CEP); the Canadian Federation of Students (CFS); the Council of Canadians; the Canadian Union of Public Employees (CUPE); and the Ontario Public Service Employees Union (OPSEU). On 15 May 2012, the Panel in WT/DS412 received a second unsolicited amicus curiae brief from the following organizations: the International Institute for Sustainable Development (IISD); the Canadian Environmental Law Association (CELA); and Ecojustice Canada. 

1.13 During the second substantive meeting of the Panel with the parties, Japan, the European Union and Canada recalled that it is within the discretion of the Panel to accept or reject the unsolicited amicus curiae briefs. Subsequently, and consistent with the approach taken by previous panels, the Panel informed the parties that it would take the briefs into account only to the extent the parties decided to incorporate them into their own submissions. Canada informed the Panel that it had no comments to add on this issue beyond what Canada had already stated at the second substantive meeting with the Panel, namely that it is within the discretion of the Panel to accept or reject the unsolicited amicus curiae briefs. Japan and the European Union (the "complainants") informed the Panel that they did not consider it necessary to incorporate any of the observations made in the amicus curiae briefs. In the light of the parties' views, the Panel did not find it necessary to take the briefs into account in its analysis of the claims and arguments made in these disputes."

The Panel suggested that amicus curiae briefs would be taken into account "only to the extent the parties decided to incorporate them into their own submissions."What implications does this have on the jurisprudence of the reliance of amicus curiae briefs in WTO dispute settlement proceedings. Does it imply that "independent", "non-party" (non-State/government) briefs are not acceptable to the Panel? Is this a positive sign? While reliance on amicus curiae briefs for arriving at a decision may not be necessary, is the decision not to consider them at all a step in the right direction?is here a resistance of member countries to accept amicus curiae briefs? Are amicus curiae briefs non-representational and aimed at espousing vested interests all the time? Ofcourse, amicus curiae briefs may not represent the will of the member countries but can they be important sources of expert opinion, third party interests, jurisprudence and understanding? While the terms of admissibility may be debated, can the "incorporation" by the parties of the amicus curiae vireo be the only ground for acceptance. If that were the case, there would be no need for amicus curiae briefs itself. Some scholarly works on amicus curiae briefs and WTO are found here, here, here  and here. Am I missing something here?

More on the issues of the compatibility of the Ontario FiT programme with TRIMs, GATT and the interpretation of a subsidy under the ASCM (financial contribution and benefit)in the coming days here.

Prof.Lenz comments on my paper

I am grateful for Prof.Lenz for so kindly reading my working paper on Renewable Energy programs and WTO law compatibility and offering a critique by email (both on substantive points and on avoidable typos!). It is both an honour and humbling.

He also commented on the paper in his blog Lenz Blog here:

"I am pleased that my blog made it into one of the footnotes. And I am also pleased to note that the book takes the view that feed-in tariffs are subsidies under WTO law. That’s because I am of the opposing view on that point, which makes it possible to discuss the issue. 

Srikar’s theory relies on one point I would call into question. In his opinion, delivering electricity services is a function normally performed by government. 

That’s just not true. Look at all the industrialized countries and show me one where the government provides electricity. 

It is true that some less developed countries may have not privatized this function. But that does not make it one “normally” provided by government. 

And it is true that this will lead to a different treatment of the issue, depending on which way electricity is organized somewhere. But that’s just the normal consequence of that different structure, which each country is basically free to choose. 

In contrast, I agree completely that local content requirements for generating equipment are a clear case of violating the national treatment requirement under Article 3 of GATT. 

And I also agree with the analysis that restricting the feed-in tariff to electricity generated nationally is at least very dubious under exactly the same standard, though just about everybody seems to do it that way. 

I think that is an important point when discussing international trade in electricity. If you discuss a Regional Comprehensive Economic Partnership Agreement for Asia, as will happen next year, it might be of interest to include language that requires everyone to extend their feed-in tariff programs to imported electricity. 

I think doing that would be very helpful when building the Asia Super Grid. In the absence of getting that done, one might consider to call for Japan paying a feed-in tariff specifically for energy generated in the Mongolian Gobi desert. I recall having done that recently. 

Of course, people could object that this would be violating the most-favored nation rule of the WTO, so one would need to ask if it may be justified under the Enabling Clause."

While I agree with Prof.Lenz that many industrialized countries do not have public sector electricity utilities, it is a reality in a large number of countries. I have often felt that multilateral trade rules do not presume the diminished role of the State. States, in varying degree, do play active roles in the economy. The argument that guaranteed tariffs are more "regulatory"in nature and not what governments "normally" do, will lead to a discriminatory situation where states play a more active role in the renewable energy sector. While the intent and impact of the guaranteed tariff in both cases would be the same, the country where the state is more involved will be adversely effected. As I have suggested in my paper:

"Merely because the measure is a “regulatory” measure as opposed to a direct transfer of funds, need not, ipso facto, exempt it from the characteristic of being a financial contribution. The intent of the measure is of primary importance. The provision of a guaranteed price support is to encourage the RE sector as compared to the non-RE sector. The nature of the market in many countries is such that the Government does not play an active role in the electricity market in terms of actually producing, transmitting and distributing electricity. Hence, the participation of private electricity utilities is a normal feature. If not for these private entities, the function of producing electricity and also providing price support directly to producers of RE would have vested with the government and would have normally been followed by governments. Thus, even though the price support mandate has the characteristic of a regulatory measure, it does delegate a function that is normally performed by government. In this sense, FiTs that involve private electricity entities paying guaranteed prices due to a government mandate can also be considered as financial contributions. Not doing so would lead to a discriminatory situation wherein countries in which governments play a more active role in FiTs (in terms of running electricity utilities and guaranteeing payments) would fall under this category of subsidies, while countries only “mandating” or “regulating” the payment, falling outside the radar of this provision. This would discriminate against developing and LDCs where the government tends to play a more active role in providing services. While this is not to comment on the more efficient or desirable way of providing the service (public or private), the interpretation of Article 1 of the ASCM should not lead to this discriminatory situation. Thus, it could be argued that FiTs, which provide a guaranteed tariff, do constitute a financial contribution and hence amount to a subsidy."

I may be totally wrong here. But I think there is a valid legal argument on both sides. It would probably be resolved when an FiT is challenged at the dispute settlement proceeding sometime soon!


 
 

My Working Paper on Renewable Energy programs and WTO law compatibility

Sharing my Working Paper on "Renewable Energy Programmes in the European Union, Japan and the U.S. - Compatibility with WTO Law" that I completed for the Centre for WTO Studies.

It is also on the Social Science Research Network. The link to that is here.

Comments, critiques and updates most welcome by email.

Local content and the Chinese challenge - sustainable?

I had earlier blogged about the Chinese challenge to the EU renewable energy FiT programs, particularly of Italy and Greece. While one awaits the Canadian FiT case Panel decision, China's request for consultation in this case offers opportunities for the development of WTO jurisprudence in the are of renewable energy, local content and permissible domestic policy space.

China challenged the "Italian Legislative Decree of 3 March 2011, for the incentivizing of the production of electrical energy from photovoltaic solar installations, generally, and Article 25(10) thereof, specifically" and also "the 7 August 2012 version of the "Implementing Rules" pertaining to, inter alia, the administration of the Italian Feed-In Tariff, promulgated by the Italian Gestore Servizi Energetici (Regole Applicative per l’Iscrizione ai Registri e per l’Accesso alle Tariffe Incentivanti), generally, but including in particular Article 4.4 ("Premium for installations that use main components produced within EU/EEA States"), and all pertinent past and future versions thereof." On the Greek measures, China challenged the "Development of the Athens former international airport Hellinikon - Project HELIOS - Promotion of the use of energy from renewable sources as well as the "primary Greek legislation on renewable energy sources, i.e. Act No. 3468/2006 on "Electricity Production from Renewable Energy Sources." 

The main legal basis for China's request for consultation is found in the following arguments:

"China considers that the above-mentioned measures are inconsistent, both as such and as applied, with, among others, the following obligations under the following provisions:

• Article III:1 of the GATT 1994, because the measures are laws, regulations and requirements affecting the internal sale of products in such a way that they afford protection to domestic production;

• Article III:4 of the GATT 1994, because certain measures accord less favorable treatment to imported equipment for renewable energy generation facilities over like products produced in the EU and the European Economic Area ("EEA");

• Article III:5 of the GATT 1994 because the measures constitute quantitative regulations relating to the use of products in amounts or proportions which requires, directly or indirectly, that a specified amount or proportion of any product which is the subject of the regulation must be supplied from domestic sources; 

• Article I of the GATT 1994, because certain domestic content restrictions impede other WTO Members, including China, from enjoying the full benefit of the measures while other WTO Members do not face similar restrictions. These include but are not limited to certain WTO Members which are Members of the European Economic Area (EEA) but not the EU;

• Articles 3.1(b) and 3.2 of the SCM Agreement, because the measures include subsidies within the meaning of Article 1.1 of the SCM Agreement that are prohibited as they are provided contingent upon the use of domestic over imported goods;

• Articles 2.1 and 2.2 of the TRIMs Agreement, in conjunction with paragraph 1(a) of the Agreement's Illustrative List, because the measures are trade-related investment measures inconsistent with Article III:4 of the GATT 1994 which condition the receipt of the full advantage of the measure on the use of domestic goods."

While the GATT challenge may be more easily sustainable if local goods are favored over imported goods, the finding of a prohibited subsidy under the ASCM may be a little more arduous because of the definitional requirements of what constitutes a subsidy including financial contribution, benefit and specificity. This opens up another debate about the applicability of Article XX GATT which provides for general exceptions to the GATT provisions on the grounds, inter alia, of the environment.

One would have to way and watch the journey of the Canadian FiT case and the arguments in the China challenge. The rulings will have immense implications for renewable energy programs around the world that are dependent on local content requirements.

Lenz Blog and Renewable energy subsidies

It was encouraging to be personally referred to by Prof.Karl-Friedrich Lenz in his blog Lenz Blog referring to few of my questions on Feed in Tariffs and WTO law. His analysis on the German FIT is very interesting and raises pertinent questions about renewable energy subsidies and WTO law compatibility in the wider context of climate change and trade rules. His blog piece on the issue  is here.