Climate change mitigation subsidies and the WTO agreement on subsidies and countervailing measures : a case for reform using the EU state aid discipline as blueprint to green the WTO subsidy rulebook?

Abstract

Today, abnormal weather events of unprecedented magnitude and geophysical phenomena induced by climate change imperil humankind and living species’ life and health. For a successful transition to a resilient, carbon-neutral economy, countries need urgently to adopt a portfolio of ambitious climate change mitigation measures. Subsidies facilitating the creation, development, and diffusion of breakthrough and disruptive clean energy technologies lie at the heart of governments’ climate change policy packages. Since 2010, however, trade disputes over green subsidies have mushroomed. These frictions have thrown into the limelight the lack of an exception or exemption clause under the World Trade Organization (WTO) Agreement disciplining subsidies and countervailing measures (the SCM Agreement). Against this backdrop, the thesis inquires whether, in the absence of any ‘saving clause’, the SCM Agreement constrains governments’ ability to devise climate change mitigation subsidies aimed to facilitate the shift towards a decarbonised economy. It makes four central contributions. First, it shows that the criteria shaping the WTO subsidy discipline cannot on their own provide governments with a predictable and definite policy space to adopt clean energy subsidies. Second, thoroughly examining the WTO adjudicators’ attempts to inject flexibility into the subsidy definition, the thesis demonstrates that an adjudicatory solution to accommodate climate change mitigation subsidies may undermine the WTO subsidy discipline’s effectiveness and, more broadly, the legitimacy of the WTO adjudicatory body. Third, the thesis reveals that the WTO membership could draw very little inspiration from the EU State aid discipline to craft exemptions or exceptions for green subsidies owing to the fundamental differences between the two regimes. Fourth, against the background of the current gridlocked multilateral trade negotiations, the thesis puts forward pragmatic policy proposals to ‘green’ the WTO subsidy rulebook. It argues that WTO Members should embrace alternative modes of governance and negotiations within the WTO, such as enhanced transparency mechanisms and plurilateral negotiation approaches.