CO2 Levies and Tariffs on Imported Electricity: Assessing the Compatibility of Options with WTO Law
A study prepared for the Swiss Federal Financial Administration (FFA) and the Swiss Federal Office of Energy (SFOE) by Thomas Cottier, Ilaria Espa, Kateryna Holzer, and Tetyana Payosova.
The study examines three options for ways in which a more level playing field between domestic and imported electricity can be achieved. Under the first option, an electricity tax is linked to the source of electricity, targeting fossil fuel electricity generation. The second option foresees the application of a tax on imported fossil fuel electricity, based on the CO2 content of the electricity. Under the third option, Switzerland uses import tariffs as an instrument to tax imported fossil fuel electricity. Finally, the study addresses the possibility of taxing imported electricity from nuclear power. The study finds that under WTO law, EU law and the Switzerland–EEC 1972 FTA, it is unlikely that a differential electricity tax will have to be readjusted for imported EU electricity in order to take into account the costs incurred by EU electricity producers subject to the EU ETS. Furthermore, taxing imported nuclear electricity requires a comprehensive differentiated electricity tax imposed equally on domestic and imported nuclear electricity, both under WTO law and under the Switzerland–EEC 1972 FTA. Moreover, the study examines the possibility to introduce an import tariff on electricity from fossil fuels or nuclear power. This scenario would require deconsolidation of Swiss tariffs for electricity bound at zero per cent based on production methods according to Art. XXVIII GATT. However, under the Switzerland–EEC 1972 FTA as well as under EU law, imposition of any tariffs on the import of electricity is prohibited and cannot be justified without revoking the Free Trade Agreement. In any case, the implementation of differentiated taxation creates practical problems in all constellations discussed. Currently EU GOs do not contain the necessary information for tracing the exact CO2 footprint of electricity from fossil fuels, and do not distinguish fossil electricity from nuclear electricity. This issue could be taken up in bilateral negotiations with the EU.