Renewable Electricity Tax Exemption Scheme and Legally Available Instruments of Addressing Domestic Competitiveness Concerns: An Assessment of Policy Space under WTO law and Swiss-EU FTA
Legal Opinion by T. Cottier, I. Espa and K. Holzer for the Swiss Federal Office of Energy (SFOE)
The problem of increasing imports of subsidized renewable electricity from neighbouring countries and Member States of the EU, undermining level playing fields for power plants in Switzer-land, can be addressed by means of preferential taxation of electricity generated from renewable energy sources. Both under WTO law and the rules of the 1972 Free Trade Agreement, distinctions may be drawn on the basis of production and process methods (PPMs), provided the same rules apply to domestic and imported electricity produced with similar methods. Differential taxation can be implemented on the basis of green electricity certificates which need to be made available alike to domestic and foreign producers. A privilege exclusively granted to domestic producers cannot be lawfully sustained. Also, quantitative restrictions on the eligibility of certificates cannot be properly justified. Restrictions based on qualitative criteria could be defended on environmental grounds as long as they objectively apply to both domestic and imported electricity alike.
The paper recommends adopting a system comparable to the UK model of renewable electricity exemption scheme under the Climate Change Levy, in place since 2001. In contrast to an electricity tax system based on guarantees of origin (GOs) discussed in the legal opinion dated April 18, 2014, the value added of the UK model based on tax exemption certificates consists in permitting to condition the eligibility of electricity tax exemptions based on qualitative criteria designed ac-cording to the Swiss environmental legislation (or industry/technology standards).
To the extent that considerations of industrial policy dominate the motivation, rather than the promotion of green electricity, measures could be adopted on the basis of countervailing duties, offsetting foreign subsidies granted. Also, recourse to safeguard measures, albeit limited in time, can be contemplated. As Switzerland has little experience in taking recourse to trade remedies, a proper methodology taking into account WTO law would need to be developed and communicated in advance. Finally, efforts should be made to address the issue in negotiations with the European Union and Member States. Both unilateral measures relating to differential taxation as well as trade remedies may be used as an argument to bring about a settlement with exporting countries of subsidized electricity.