Greenhouse gas emissions are a market failure. How might international trade rules respond? Renewable energy has a key role to play in mitigating climate change and guaranteeing long-term energy supply. Climate change and energy security concerns may compel governments to provide incentives for investments in renewable energy. Such incentives can be given to consumers for purchasing renewable energy products via tax reduction or offered to enterprises manufacturing renewable energy technologies via grants, funds or awards, among others. Despite the need for incentives to stimulate generation of renewable energy under certain circumstances, the legality of some renewable energy incentive mechanisms has been questioned in the framework of the WTO dispute settlement system, in so far as these might be unfair or discriminatory vis-à-vis trade partners. In 2010, the US challenged China at the WTO for providing grants, funds, or awards to domestic wind power equipment manufacturers and subsequently, Beijing removed the measures at issue. Meanwhile, Japan and the EU filed formal WTO complaints against Canada over Ontario’s measures relating to its feed-in tariff (FIT) scheme. While these two disputes essentially concern domestic content requirements, the Appellate Body seems to have so far avoided addressing a systemic concern, i.e. whether FITs constitute...
Written by Wei Zhuang