31 Aug 2015
Renewable Energy and Process and Production Methods
Think piece by Thomas Cottier
In the debate on climate change, methods of producing products and energy are of paramount importance. While the product or the form of energy resulting may be the same, diverging production processes and methods of production may have a critical impact on climate change mitigation, and environmental and human concerns in general. Some may be detrimental, some may be beneficial. They vary from each other, notwithstanding that the final products cannot be distinguished from each other. This paper explores the extent to which renewable energy and non-renewable energy, in particular based on fossil fuels, may be regulated, labelled, or taxed differently, or whether the likeness of the product prohibits doing so in international trade law relating to production and process methods (PPMs). In doing so, the paper mainly focuses on the production of electricity from fossil fuels (coal, oil, and gas), atomic energy, and renewable energy (hydropower, thermal power, wind, solar and tidal energy, and biomass). Energy produced from fossil fuel or renewable energy may sometimes be distinguished as products. More frequently, however, such distinctions cannot be made. Electricity as a product cannot be physically distinguished on the basis of the type of energy used to produce it. The physical properties of electricity do not vary and do not depend on the mode of production used. Electricity in contemporary international law is defined as a good. It is subject to the disciplines of World Trade Organization (WTO) law, in particular Article III of the General Agreement on Tariffs and Trade (GATT) 1994 and related international agreements. Thus, the basic principle of treating like products alike applies to all electricity. In particular, taxation, technical regulations, and other rules need to treat imported electricity no less favourably than domestic electricity, irrespective of the mode of production used. Given the principles of most-favored nation (MFN) and national treatment under GATT 1994, the question arises to what extent differential treatment may be based on the modes of production of energy. This question relates to PPMs, which are of two basic types—product-related PPMs (PR-PPMs); and non-product-related PPMs (NPR-PPMs). Incentives to bring about electricity production and trade on the basis of renewable energy or the promotion of biomass in the decarbonisation process requires full recognition of NPR-PPMs. Currently, incentives mainly consist of labelling schemes, such as guarantees of origin and green certificates. However, this kind of incentive alone is not able to induce the necessary shift in the energy production process.The established concept of likeness in WTO law does not readily allow for product differentiation on the basis of PPMs and thus of differing PPMs. Such schemes, except for the purposes of labelling under the TBT Agreement, essentially depend on qualifications contained in the exceptions to Article XX GATT. Much depends on the precise modalities of implementing a scheme; the law does not offer adequate predictability and legal security. Moreover, current WTO law may allow for unilateral imposition of PPMs, but does not provide for compensatory mechanisms in transferring know-how and technology relating to PPMs. Parameters allowing for PPMs without invoking exceptions thus need to be developed in conjunction with facilitating investment and trade in PPMs. Access to technology for exporting countries will be a key component in accepting a shift in likeness of products and increasingly allowing for taking sustainable manners of production into account. While there is room for a general body of law to be further developed on PPMs beyond the case law of WTO panels and the Appellate Body, each sector needs assessing particular needs and whether special provisions should be included in particular sectoral agreements relating to different forms of energy production. PPMs may thus amount to an important component of sectoral agreements on trade in electricity.