30 Jun 2011    Working Papers
Rubini, Luca

Subsidization of Renewable Energy in the WTO

NCCR Trade Regulation Working Paper No. 2011/32, authored by Luca Rubini.

The fast deployment of renewable energy is crucial in the fight against climate change. While there are significant advances from the technological, commercial and even public opinion perspective, renewable energy still faces significant obstacles and barriers which justify a significant public support. The issue is not ‘if’ but ‘how’. Subsidies are part of this policy tool-box. Economics and empirical research are telling us that design is crucial, and so is the synergy of the various instruments of support. The proper and continuous exchange of information between private and public actors is also of the essence. Against this background, the key question for those dealing with systems of rules and governance, is to ask whether the current discipline, particularly that of subsidies, offers sufficient policy space to accommodate the said needs of public support. The goal of this paper is therefore to analyze issues and perspectives coming out from this question of policy space. This paper has thoroughly analyzed the current rules applicable to subsidies in the WTO and has come to the conclusion that, for various reasons, depending either on the nature of the subsidies themselves or on the uncertainty of the legal texts, on the heavily distorted nature of energy markets or on the inconsistency of trade and environmental perspectives, the current discipline is not tipped in favour of an acceptable and certain degree of ‘green policy space’. This has led to extend the analysis to the typical second step of legal assessment, to consider whether there are any exceptions or justifications that could apply and, through their shelter, guarantee the required amount of policy space. While there are currently no rules recognizing that subsidies for environmental purposes and more specifically for renewable energy support may be desirable and legitimate, the focus has shifted to what has emerged as a troublesome but credible hypothesis: the applicability of the general exceptions of GATT Article XX. Since this is not however the first-best solution, we have provided a blueprint for law reform, outlining the main principles and traits of a would-be new system of governance of legitimate subsidies in the WTO. The focus has been on the concept of community, the combination of mechanisms of hard and soft governance, the  reinforcement of transparency and of the institutional frameworks, and the possibility of using the fairly developed system of justifications in EU State aid law for a model, particularly with respect to the design and possibly the content of the specific exceptions.

NCCR Trade Regulation Working Paper No. 2011/32