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SHELTERING GOVERNMENT SUPPORT TO ‘GREEN’ ELECTRICITY: THE EUROPEAN UNION AND THE WORLD TRADE ORGANIZATION

Published online by Cambridge University Press:  03 January 2018

Gracia Marín Durán
Gracia Marín Durán*
Affiliation:
Senior Lecturer in International Economic Law, Faculty of Laws, University College London. [email protected].
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Abstract

Since the Canada – Renewable Energy (2013) dispute at the World Trade Organization (WTO), the WTO Agreement on Subsidies and Countervailing Measures (SCM) has been the focal point of academic debate on the trade-environment interface, with a growing consensus that WTO subsidy rules need to be revisited with a view to securing ‘policy space’ for government support for renewable energy. This article explores whether, as suggested by some scholars, the European Union (EU)’s system of justifications for renewable energy aid could serve as a source of inspiration for the WTO. While this proposition may appear attractive at first sight, it is hardly conceivable, or even desirable, that the EU's approach to sheltering government support for renewable energy could be transposed to the WTO. This is because the two systems of subsidy control are fundamentally different in both substantive and procedural terms and, importantly, these differences reflect distinct objectives and political/institutional contexts. Nonetheless, this comparative analysis sheds light on where the key challenges lie for the WTO in ensuring that international trade rules and climate change mitigation objectives are mutually supportive. It is argued that the case for reviewing the SCM Agreement cannot be made by simply forging parallels with the EU's regulatory model, but needs to be carefully construed on the basis of a proper understanding of whether and how green policy space is actually constrained under the current WTO subsidy and trade remedy rules. However, this requires better information on existing WTO members’ practice in relation to renewable energy subsidies, as well as on their environmental effectiveness and possible trade-distortive impact. In this sense, the most valuable lesson that the WTO can draw from the EU's regulatory experience is the imperative of improving the transparency and knowledge-enhancing elements of its subsidy control system.

Keywords

climate change mitigationEU State aid lawgreen electricitymutual supportivenessrenewable energy subsidiesWTO subsidy disciplines
Type
Articles
Information
International & Comparative Law Quarterly , Volume 67 , Issue 1 , January 2018 , pp. 129 - 165
Copyright
Copyright © British Institute of International and Comparative Law 2017 

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References

1 WTO Appellate Body Report, Canada — Certain Measures Affecting the Renewable Energy Generation Sector/Measures Relating to the Feed-in Tariff Program, WT/DS412/DS426/AB/R, adopted 24 May 2013 [Canada – Renewable Energy (2013)].

2 Pioneering this call for reform is: L Rubini, ‘Ain't Wastin Time No More: Subsidies for Renewable Energy, the SCM Agreement, Policy Space and Law Reform’ (2012) 15(2) JIEL 525. Subsequent contributions in this direction include: L Casier and T Moerenhout, ‘WTO Members, Not the Appellate Body, Need to Clarify the Boundaries in Renewable Energy Support’ (International Institute for Sustainable Development, July 2013), <https://www.iisd.org/pdf/2013/wto_members_renewable_energy_support.pdf>; A Cosbey and PC Mavroidis, ‘A Turquoise Mess: Green Subsidies, Blue Industrial Policy and Renewable Energy – the Case for Re-drafting the Subsidies Agreement of the WTO’ (2014) 17(1) JIEL 11; PD Farah and E Cima, ‘The World Trade Organization, Renewable Energy Subsidies, and the Case of Feed-in Tariffs: Time for Reform Towards Sustainable Development’ (2015) 27 GeoIntlEnvtlLRev 515; R Howse, ‘Securing Policy Space for Clean Energy under the SCM Agreement: Alternative Approaches’ (International Centre for Trade and Sustainable Development/World Economic Forum, December 2013) <http://e15initiative.org/publications/securing-policy-space-for-clean-energy-under-the-scm-agreement-alternative-approaches/>; S Shadikhodjaev, ‘Renewable Energy and Government Support: Time to Green the SCM Agreement?’ (2015) 14(3) WTR 479. For a more nuanced stance, see DP Steger, ‘Green Energy Programs and the WTO Agreement on Subsidies and Countervailing Measures: A Good FIT?’ (2015) Ottawa Faculty of Law Working Paper 2015/20, <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2591083>.

3 This has been mainly advocated by Luca Rubini, but without in-depth elaboration: see Rubini (n 2) 577; and L Rubini, ‘Rethinking International Subsidies Disciplines: Rationale and Possible Avenues for Reform’ (International Centre for Trade and Sustainable Development/World Economic Forum, November 2015) at 4–5, <http://e15initiative.org/publications/rethinking-international-subsidies-disciplines-rationale-and-possible-avenues-for-reform/>. See also Bigdeli, SZ, ‘Resurrecting the Dead? The Expired Non-Actionable Subsidies and the Lingering Question of “Green Space”’ (2011) 8(2) MJIEL 2, 10–23 Google Scholar, drawing lessons from the EU's regulatory approach for the WTO but preceding Canada – Renewable Energy (2013).

4 See, inter alia, United Nations Environment Programme/World Trade Organisation, Report on Trade and Climate Change (2009) [UNEP/WTO Report 2009] at v.

5 United Nations Framework Convention on Climate Change, signed on 9 May 1992, 771 UNTS 107, art 2.

6 Intergovernmental Panel on Climate Change, ‘Summary for Policymakers’ in Edenhofer, O et al. (eds), Climate Change 2014: Mitigation of Climate Change –Contribution of Working Group III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change (Cambridge University Press 2014)Google Scholar [IPCC Report 2014] at 12.

7 Paris Agreement, concluded 12 December 2015, art 2(1)(a) (emphasis added).

8 ibid, arts 3 and 4(2). Note that this was groundbreaking vis-à-vis the UNFCC division between ‘Annex I Parties’ (43 in total, considered ‘developed countries’ with first- or second-period Kyoto GHG emission reduction targets) and ‘non-Annex I Parties’ (the vast majority, considered ‘developing countries’ with no GHG emission reduction targets), the latter group being greatly heterogeneous and including large emerging economies with significant GHG emissions (such as Brazil, China, India and South Africa) and rich fossil-fuel producing nations (such as Saudi Arabia, Qatar and United Arab Emirates). Scientific estimates, however, have shown that it was not possible to achieve the 2°C climate target without ‘developing-country’ action: see further, Kulovesi, K, ‘Real or Imagined Controversies? A Climate Law Perspective on the Growing Links between the International Trade and Climate Change Regimes’ (2014) 6(1) Trade, Law and Development 54, 64–5Google Scholar.

9 On this point, see Kulovesi (n 8) 85–8.

10 International Energy Agency, Redrawing the Energy-Climate Map – World Energy Outlook Special Report (2013) [IEA Report 2013] at 15; and Energy and Climate Change – World Energy Outlook Special Report (2015) [IEA Report 2015] at 20.

11 Stern, N, The Economics of Climate Change: Stern Review (Cambridge University Press 2007)Google Scholar, Executive Summary, at i and iv, referred to in inter alia: Cosbey and Mavroidis (n 2) 29 and Rubini (n 2) 528.

12 Shadikhodjaev (n 2) 484.

13 See inter alia, International Institute for Sustainable Development/United Nations Environment Programme, Trade and Green Economy – A Handbook (2014) [IISD/UNEP Handbook 2014] 94; S Charnovitz, ‘Green Subsidies and the WTO’ (2013) EUI Working Papers RSCAS 2014/93, at 1–3, <http://cadmus.eui.eu/bitstream/handle/1814/32791/RSCAS_2014_93.pdf?sequence=1>.

14 IPPC Report 2014 (n 6) 13.

15 Charnovitz (n 13) 2; Farah, PD and Cima, E, ‘WTO Law and Renewable Energy: Lessons from the Case Law’ (2015) 49(6) JWT 1103 Google Scholar, 1105.

16 IEA Report 2015 (n 10) 90.

17 Rodrik, D, ‘Green Industrial Policy’ (2014) 30(3) Oxford Review of Economic Policy 469 CrossRefGoogle Scholar, 470.

18 Bigdeli (n 3) 28.

19 IPCC Report 2014 (n 6) 28–9.

20 IEA Report 2015 (n 10) 13 and 135; see also IEA Report 2013 (n 10) 11.

21 Howse (n 2) 1.

22 IEA Report 2013 (n 10) 67–90; and IEA Report 2015 (n 10) 91–3 for an overview of selected national experiences with fossil-fuel subsidy reform.

23 See, for example, International Renewable Energy Agency, REmap 2030: A Renewable Energy Roadmap – Summary of Findings (2014) at 11–12, aimed at achieving a RE share of at least 30 per cent in the global energy mix to secure the 2°C climate target and whose implementation assumes worldwide RE subsidies to rise to $315 billion in 2030; see also International Energy Agency, World Energy Outlook – A Renewable Energy Outlook (2012) [IEA Report 2012] at 234–5, estimating total renewable energy subsidies to reach almost $240 billion per year by 2035 in its ‘New Policies Scenario’, with solar PV and offshore wind technologies requiring public support worldwide (outside of limited niche applications) through 2035; and IEA Report 2015 (n 10) 21.

24 See, for example, art 2.1(a) (iv) of the Kyoto Protocol to the United Nations Framework Convention on Climate Change, signed on 11 December 1997, 2303 UNTS 148, which generally recognizes that GHG emission reductions may be achieved through the ‘promotion, development and use of new and renewable forms of energy’ but leaves Parties ample scope to decide which RE promotion measures to implement.

25 Kulovesi (n 8) 69.

26 REN21, Renewables 2016 – Global Status Report (2016) [REN21 Report 2016] at 8; see also IEA Report 2012 (n 23) 234, estimating that renewable energy subsidies stood at $88 billion in 2011, with $66 billion going to electricity and solar PV receiving more than any other technology for green electricity generation ($25 billion), followed by wind ($21 billion) and bioenergy ($15 billion).

27 REN21 Report 2016 (n 26) 8.

28 REN21, Renewables 2013 – Global Status Report (2013) [REN21 Report 2013] 68.

29 On this point, see further section III.A.

30 Intergovernmental Panel on Climate Change, Renewable Energy Sources and Climate Change Mitigation – Summary for Policy Makers and Technical Summary (2012) at 152, outlining the main elements of ‘well-designed’ FIT programmes; see also Charnovitz, S and Fischer, C, ‘ Canada – Renewable Energy: Implications for WTO on Green and Not-So-Green Subsidies’ (2015) 14(2) WTR 177 Google Scholar, 183, referring to estimates that FITs are responsible for about 75 per cent of global solar PV and 45 per cent of global wind capacity.

31 For an overview, see REN21 Report 2013 (n 28) 68–70; and REN21 Report 2016 (n 26) 8.

32 IEA Report 2015 (n 10) 13 and 85.

33 International Energy Agency, ‘Electricity Information: Overview’ (2017) 5 and 7–8, <https://www.iea.org/publications/freepublications/publication/ElectricityInformation2017Overview.pdf>. A significant difference can be noticed between OECD countries, where total electricity imports amounted to 488 TWh (about 4.4 per cent of OECD final electricity consumption) and the bulk of trade flows occurred within the EU integrated electricity market, and non-OECD countries, where total electricity imports amounted to 238 TWh (about 2.2 per cent of non-OECD final electricity consumption).

34 See further section III.A.

35 Charnovitz and Fischer (n 30) 184–5.

36 Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources, OJ [2009] L140/16 [2009 Renewable Energy Directive] arts 3(1) and (4). These renewable energy targets were previously advanced in: European Commission, ‘Communication on Renewable Energy Roadmap – Renewable Energies in the 21st Century: Building a more Sustainable Future’ COM(2006) 848final (10 January 2007).

37 The 2020 climate and energy targets further include: (i) reducing greenhouse gas emissions by 20 per cent from 1990 levels; and (ii) improving energy efficiency by 20 per cent. These were endorsed by the European Council, ‘Presidency Conclusions – Brussels, 8/9 March 2007’ (7224/1/07) (2 May 2007) 10–12 and 19–18. To implement these 2020 targets, the EU adopted a package of measures in 2009: see inter alia, Kulovesi, K, Morgera, E and Muñoz, M, ‘Environmental Integration and Multi-Faceted International Dimensions of EU Law: Unpacking the EU's 2009 Climate and Energy Package’ (2011) 48(3) CMLRev 829 Google Scholar.

38 European Commission, ‘Communication on Energy 2020 – A Strategy for Competitive, Sustainable and Secure Energy’ COM(2010) 639final (10 November 2010) [Communication Energy 2020] at 2.

39 2009 Renewable Energy Directive (n 36) Preamble, paras 2 and 5.

40 ibid, Preamble, para 4.

41 See notably Appellate Body Report, Canada – Renewable Energy (2013) (n 1) paras 4.17 and 4.21–4.22, where electricity generators using wind or solar PV technology (but not other covered renewable energy sources) could qualify for the guaranteed prices under the FIT programme (20-year contracts) only if they utilized a certain percentage of Ontario-produced RE generation equipment (eg Ontario-made wind turbines or solar panels) in developing and constructing their generation facilities. More generally see Lewis, JI, ‘The Rise of Renewable Energy Protectionism: Emerging Trade Conflicts and Implications for Low Carbon Development’ (2014) 14 (4) Global Environmental Politics 10 CrossRefGoogle Scholar.

42 See section III.A.

43 2009 Renewable Energy Directive (n 36), Annex 1, part A, where national targets for the share of renewable energy in final energy consumption range from 10 per cent in Malta to 49 per cent in Sweden.

44 ibid, art 4 and Annex VII. These national action plans may be found at: <http://ec.europa.eu/energy/node/71>.

45 The Renewable Energy Directive introduces a number of cooperation mechanisms aimed at facilitating the achievement of the 2020 national targets, notably: (i) statistical transfers of a specified amount of renewable energy from one Member State to another Member State (art 6); (ii) joint projects, whereby two or more Member States may co-finance and implement a project for the production of electricity, heating or cooling from renewable energy sources, and share the resulting renewable energy for the purpose of meeting their national targets (art 7); (iii) joint support schemes, whereby two or more Member States may decide to join or partly coordinate their national support schemes, and in such cases, a certain amount of renewable energy produced in the territory of one participating Member State may (under certain conditions) count towards the national target of another Member State (art 11); and (iv) joint projects by one or more Member States made with third countries regarding the production of electricity from renewable energy sources (art 9).

46 Space limitations do not allow for a comprehensive examination of the 2009 Renewable Energy Directive and thus only its most relevant provisions for RE support schemes will be discussed here. For a more detailed account, see Kulovesi, Morgera and Muñoz (n 37) 874–87. A particularly salient feature of the Directive are the provisions establishing sustainability criteria for biofuels and bioliquids, whereby only conforming biofuels and bioliquids may count towards meeting the obligatory national RE targets in the transport sector and/or be eligible for financial support (art 17). These have been in the international spotlight for several reasons, including their WTO-compatibility: see World Trade Organization, European Union and Certain Member States – Certain Measures on the Importation and Marketing of Biodiesel and Measures Supporting the Biodiesel Industry – Request for Consultations by Argentina (WT/DS459/1) dated 23 May 2013; and further discussion in Swinbank, A and Daugbjerg, C, ‘Improving EU Biofuels Policy? Greenhouse Gas Emission, Policy Efficiency and WTO Compatibility’ (2013) 47(4) JWT 813 Google Scholar.

47 2009 Renewable Energy Directive (n 36) art 3(3).

48 ibid, art 2(k).

49 European Commission, ‘Staff Working Document – Guidance for the Design of Renewable Support Schemes’ SWD(2013) 439 final (5 November 2013) [Commission WD 2013] Table 2, at 25; and ‘Study by the Chamber of Commerce and Industry for Munich and Upper Bavaria’, Table 2, at 17–21. See also European Commission, ‘Competition Policy Brief – Improving State Aid for Energy and the Environment’ (October 2014) [Commission Policy Brief 2014], at 2 for variations in support levels.

50 European Commission, ‘Staff Working Document – The Support of Electricity from Renewable Energy Sources’ COM(2008) 19final (23 January 2008) at 14.

51 European Commission, ‘Guidelines on State Aid for Environmental Protection and Energy 2014–2020’, OJ [2014] C 200/1 [2014–2020 EEA Guidelines]; see further section III.B.

52 European Commission, ‘Renewable Energy Progress Report’ COM(2015) 293final (15 June 2015) at 3.

53 Commission Policy Brief 2014 (n 49) 2.

54 European Commission, ‘Communication on a Policy Framework for Climate and Energy in the period from 2020 to 2030’ COM(2014) 15 final (22 January 2014) [Communication Climate and Energy 2030] at 6; and European Council, ‘Conclusions – Brussels, 23–24 October 2014’ (EUCO 169/14) (24 October 2014) at 5.

55 European Commission, ‘Proposal for a Directive of the European Parliament and of the Council’ COM(2016) 767 final/2 (23 February 2017) [2016 Proposed RE Directive].

56 ibid, art 3(1)–(2). Art 3(3) establishes the 2020 national RE targets as baseline, whereby Member States cannot go below them from 2021 onwards.

57 See also, ibid, art 23 on mainstreaming renewable energy in the heating and cooling sector (requiring Member States to achieve an annual increase of at least one percentage point every year in the share of renewable energy in the heating and cooling supply, and outlining a number of measures to implement this objective) and art 25 on mainstreaming renewable energy in the transport sector (stipulating minimum shares of energy from advanced biofuels and other biofuels and biogas produced from feedstock listed in Annex IX in the supply of transport fuels, at least equal to 1.5 per cent in 2021 and increasing up to at least 6.8 per cent in 2030 following the trajectory set out in part B of Annex X).

58 ibid, arts 4–5; and ‘Explanatory Memorandum’ at 21.

59 See section III.B.

60 Treaty on the Functioning of the European Union – Consolidated Version (TFEU), [2012] OJ C326/47.

61 Treaty establishing the European Economic Community, signed on 25 March 1957, arts 92–94.

62 See further Bacon, K, European Union Law of State Aid (2nd edn, Oxford University Press 2013) 20–87 Google Scholar.

63 SCM Agreement, arts 1.1(a)(1)(i)-(iii) and 1.1(a)(2).

64 ibid, art 1.1(a)(1)(iv).

65 ibid, art 1.1(b).

66 ibid, arts 1.2 and 2.

67 For a detailed comparative analysis, see Rubini, L, The Definition of Subsidy and State Aid: WTO and EC Law in Comparative Perspective (Oxford University Press 2009)CrossRefGoogle Scholar. In addition, WTO disciplines are clearly not confined to support measures that distort competition and trade within the EU, but more broadly apply to subsidies that affect international trade. For further discussion, see Ehlermann, C-D and Goyette, M, ‘The Interface between EU State Aid Control and the WTO Disciplines on Subsidies’ (2006) 4 EStAL 695, 698–9Google Scholar and 717.

68 cf with art 1.1(a)(1) SCM Agreement, providing an exhaustive but broad list of qualifying ‘financial contributions’. For a discussion, see van den Bossche, P, The Law and Policy of the World Trade Organization (4th edn, Cambridge University Press 2017) 776–783 CrossRefGoogle Scholar.

69 On this condition, see further Bacon (n 62) 61–3.

70 On this requirement, see further Ehlermann and Goyette (n 67) 698–9.

71 Case C-379/98 PreussenElektra [2001] ECR I-2099, paras 58–62.

72 WTO Appellate Body Report, Canada — Measures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R, adopted 19 November 1999 [Canada – Aircraft (1999)], para 154, rejecting Canada's argument that ‘cost to government’ is one way of conceiving the existence of a ‘benefit’ under art 1.1(b) SCM Agreement.

73 SCM Agreement, art 1.1(a)(1)(iii)–(iv).

74 See section II.

75 Appellate Body Report, Canada – Aircraft (1999) (n 72) para 157 and art 14 SCM Agreement; Ehlermann and Goyette (n 67) 700–1.

76 Appellate Body Report, Canada – Renewable Energy (2013) (n 1) paras 1.4–1.7.

77 In addition, the complainants challenged the discriminatory LCRs in Ontario's FIT programme by invoking art III:4 of the General Agreement on Tariffs and Trade (GATT) and art 2.1 of the Agreement on Trade-Related Investment Measures (TRIMs). The Appellate Body found that Canada had violated these national treatment provisions, but an examination of these findings is beyond the scope of this article. For a detailed discussion see, among others, Darvies, A, ‘The GATT Article III:8 Procurement Derogation and Canada – Renewable Energy’ (2015) 18(3) JIEL 543 Google Scholar; Charnovitz and Fischer (n 30) 189–92; Cosbey and Mavroidis (n 2) 15–18.

78 Art 1.1(a)1(iii) SCM Agreement. Pursuant to art 14(d) SCM Agreement, it would confer a benefit if ‘the purchase is made for more than adequate remuneration’ with the adequacy of remuneration being determined in relation to the ‘prevailing market conditions for the good or service in question in the country of purchase’: Appellate Body Report, Canada – Renewable Energy (2013) (n 1) paras 5.128, 5.159–5.160 and 5.165.

79 ibid, para 5.178.

80 On this point see Rubini, L, ‘The Wide and the Narrow Gate: Benchmarking in the SCM Agreement after the Canada – Renewable Energy/FIT Ruling’ (2015) 14(2) WTR 211 Google Scholar, 219.

81 Appellate Body Report, Canada – Renewable Energy (2013) (n 1) paras 5.171–5.172.

82 ibid, para 5.170.

83 ibid, para 5.178.

84 ibid, paras 5.174–5.175.

85 ibid, para 5.175 (emphasis in original).

86 ibid, para 5.199.

87 See in particular, Cosbey and Mavroidis (n 2) 23–9; Pal, R, ‘Has the Appellate Body Decision in Canada – Renewable Energy/Canada – Feed-in Tariff Program Opened the Door for Production Subsidies?’ (2014) 17(1) JIEL 125 Google Scholar; Rubini, L, ‘The Good, the Bad, and the Ugly: Lessons on Methodology in Legal Analysis from the Recent WTO Litigation on Renewable Energy Subsidies’ (2014) 48(5) JWT 895 Google Scholar. For a less critical stance, see J Flett, ‘Preserving the balance or compromise between trade and non-trade interests through a systemic and contextual interpretation and application of the WTO Agreement, the GATT 1994 and the SCM Agreement – based on first principles – and confirmed by a comparative consideration of EU State aid law’ (Florence, 18–19 May 2015) [on file with the author]; and Kent, A and Jha, V, ‘Keeping up with Climate Change: The WTO's Evolutive Approach in Response to the Trade and Climate Change Conundrum’ (2014) 15 JWIT 245 Google Scholar.

88 Appellate Body Report, Canada – Renewable Energy (2013) (n 1) para 5.190.

89 That is, the narrower the market is, the more targeted the benchmarks for the benefit comparison are, and less likely we are to find there is a benefit and hence a subsidy. Conversely, had the ‘competitive wholesale electricity market’ as whole been chosen as the relevant market, there would have been little doubt that Ontario's FIT programme (and possibly most FITs) conferred a benefit (and hence constituted a subsidy), since it provided producers of wind- or solar PV-generated electricity with rates higher than the wholesale market rate for electricity in Ontario and ensured the entry of these producers into the Ontario electricity market when they would have otherwise not existed if left to operate under market conditions without government intervention. This was in fact the position of the dissenting panellist: WTO Panel Report, Canada – Measures Relating to the Feed-in Tariff Program, WT/DS412/DS426/R, adopted (as modified) 24 May 2013, paras 9.1–9.23.

90 Appellate Body Report, Canada – Renewable Energy (2013) (n 1) para 5.234–5.245, noting in particular that ‘[…] RES prices for wind generation contracts awarded through competitive bidding may qualify as benchmarks for a benefit comparison and seem to suggest that benefit may exist in the case of FIT wind-power generation contracts. We conclude, however, that such evidence was neither sufficiently debated before the Panel, nor before us. Moreover, the Panel did not make factual findings on this evidence that would assist us in completing the analysis.’ (emphasis added)

91 Appellate Body Report, Canada – Renewable Energy (2013) (n 1) para 5.227.

92 ibid, paras 5.228 and 5.233, noting that such price discovery mechanisms would ‘ensure that the price paid by the government is lowest possible price offered by a willing contract supplier’ (emphasis added) and hence would help avoiding ‘more than adequate compensation’ within the meaning of art 14(d) SCM Agreement; for further discussion, see Charnovitz and Fischer (n 30) 197–8.

93 For a similar view, see Cosbey and Mavroidis (n 2) 28–9; and LA Cosbey and L Rubini, ‘Does it FIT? An Assessment of the Effectiveness of Renewable Energy Measures and of the Implications of the Canada – Renewable Energy/FIT Disputes’ (International Centre for Trade and Sustainable Development/World Economic Forum, December 2013) at 4–8, <http://e15initiative.org/publications/does-it-fit-an-assessment-of-the-effectiveness-of-renewable-energy-measures-and-of-the-implications-of-the-canada-renewable-energyfit-disputes/>.

94 SCM Agreement, art 1.1(a)(1)(i).

95 ibid, art 14(b).

96 ibid, arts 2.1(a) and 2.2 on how de jure enterprise/industry/regional specificity may be established and art 2.1(c) on how de facto enterprise/industry/regional specificity may be established. As this does not differ fundamentally from the notion of ‘selectivity’ under EU State aid law, it will not be further discussed here: for a comparison, see Ehlermann and Goyette (n 67) 701–4.

97 On this point see Flett, J, Jessen, AC and Talaber-Ritz, K, ‘The Relationship between WTO Subsidies Law and EC State Aid Law’ in EC State Aid Law (Kluwer Law International 2008) 447–9Google Scholar.

98 See further, Bacon (n 62) 12–13 and 82–7.

99 SCM Agreement, art 3. For a more detailed examination, see van den Bossche (n 68) 802–810.

100 SCM Agreement, arts 5(a) and 15, referring to ‘material injury’, or threat thereof, to the domestic industry of another member producing the like product. For a more detailed examination, see van den Bossche (n 68) 811–817.

101 ibid, arts 5(c) and 6.3, referring to ‘serious prejudice’, or threat thereof, to the interests of another member, including by ‘displacing or impeding’ imports of a like product into the market of the subsidizing member, or by ‘displacing or impeding’ exports of a like product into the market of a third country, or by resulting in ‘significant’ price undercutting, price suppression, price depression or loss of sales. For a more detailed examination, see van den Bossche (n 68) 818–837.

102 The SCM Agreement provides for special remedies which, in the case of prohibited subsidies, is their removal ‘without delay’, generally meaning three months (art 4.7).

103 That is, arts III:4 GATT and 2.1 TRIMs: see Panel Report, Canada – Renewable Energy (2013) (n 89) para 7.167 and Appellate Body Report, Canada – Renewable Energy (2013) (n 1) para 5. 85. Similarly, see WTO Appellate Body Report, India — Certain Measures Relating to Solar Cells and Solar Modules, WT/DS456/AB/R, adopted 14 October 2016 [India – Solar Cells (2016)], where LCRs attached to India's feed-in tariff scheme for solar power producers were also found inconsistent with these WTO provisions.

104 Panel Report in Canada – Renewable Energy (2013) (n 89) para 7.216.

105 In the short-run, importing more (cheaper) foreign RE technology rather than imposing (costly) LCRs would result in an environmentally superior outcome. But there is a long-run theoretical argument in favour of ‘green’ industrial policy, whereby supporting local green infant-industries would allow them to mature and become competitive innovators in the green technology space, and thereby force down global prices of RE generation equipment: IISD/UNEP Handbook 2014 (n 13) 95. However, partly due to their novel character, there is no evidence that LCRs can accomplish this long-term environmental goal, and moreover evidence is flawed on LCR effectiveness in achieving their most immediate industrial policy objective: see Cosbey and Rubini (n 93) 2; J-C Kuntze and T Moerenhout, ‘Local Content Requirements and the Renewable Energy Industry – A Good Match?’ (International Center for Trade and Sustainable Development/Global Green Growth Institute, May 2013) at <https://pdfs.semanticscholar.org/6872/7a8d62a9722b28a250bef0470aeb847108f9.pdf>. Another argument in favour of LCRs is the ‘political feasibility’ rationale for RE technology localization, Bigdeli, SZ, ‘Clash of Rationalities: The Trade and Environment Debate in Light of WTO Disputes over Green Industrial Policy’ (2014) 6(1) TLD 177, 195–208 Google Scholar. cf with Howse (n 2) 1; and Cosbey and Mavroidis (n 2) 33.

106 SCM Agreement, art 5(c), fn 13 clarifies that the term ‘serious prejudice’ also includes ‘threat of serious prejudice’ (ie, prejudice that does not yet exist but is imminent such that it would materialize in the near future): see van den Bossche (n 68) 827–828.

107 WTO Appellate Body Report, EC and Certain Member States – Measures affecting Trade in Large Civil Aircraft, WT/DS/316/AB/R, adopted 1 June 2011, para 1232; WTO Appellate Body Report, United States – Measures Affecting Trade in Large Civil Aircraft (2nd complaint), WT/DS353/AB/R, adopted 23 March 2012, para 914; see van den Bossche (n 68) 829.

108 See section II.A.

109 US Energy Information Administration, ‘US-Canada Electricity Trade Increases’ (9 July 2015) <http://www.eia.gov/todayinenergy/detail.php?id=21992>.

110 However, there is quite a difference across various EU Member States. While Lithuania, Luxembourg, Hungary and Malta are net importers for 77 per cent, 90 per cent, 38 per cent and 50 per cent respectively, Bulgaria, the Czech Republic and Sweden are net exporters for 37 per cent, 23 per cent and 18 per cent respectively. Only disconnected islands show no trade of electricity (Cyprus and Iceland): see, Eurostat, ‘Electricity and Heat Statistics’ (June 2017) <http://ec.europa.eu/eurostat/statistics-explained/index.php/Electricity_and_heat_statistics>.

111 Charnovitz and Fischer (n 30) 185.

112 For the purpose of the argument, it is safe to assume that solar PV modules from country A and B are ‘like’ (competitive) products.

113 An apposite practical example here would be subsidized solar panels exported from China to the EU and US, which were subject to the anti-dumping and countervailing investigations discussed below (see n 131).

114 On this point, with particular reference to China, see Kulovesi, K, ‘International Trade Disputes on Renewable Energy: Testing the Ground for Mutual Supportiveness between WTO Law and Climate Change Law’ (2014) 23(3) RECIEL 324, 351–2Google Scholar. For a more nuanced position, see IISD/UNEP Handbook 2014 (n 13) 106.

115 Art 108 TFEU; and Council Regulation (EU) No 2015/1589 of 13 July 2015 laying down detailed rules for the application of art 108 TFEU, OJ [2015] L248/9.

116 Art 108(3) TFEU. One exception to this general rule is provided in: Commission Regulation (EU) No 1407/2013 on the application of arts 107 and 108 TFEU to de minimis aid, OJ [2013] L352/1. For all covered sectors (art 1), State aid may be granted up to a ceiling of €200,000 per single undertaking over any period of three fiscal years, or €100,000 in the road transport sector (art 3). Any such de minimis aid is deemed not to distort competition nor affect intra-EU trade, and thus does not meet the criteria of art 107(1) TFEU and does not need to be notified under art 108(3) TFEU.

117 By contrast WTO remedies are prospective, probably reflecting the idea that the system is designed primarily to protect current and future trade flows: Flett (n 97) 449.

118 For a more detailed examination, see Bacon (n 62) Ch 18.

119 SCM Agreement, art 24.1.

120 ibid, arts 25.1 and 25.2.

121 WTO Committee on Subsidies and Countervailing Measures, ‘Notification Requirements under the Agreement on Subsidies and Countervailing Measures – Background Note by the Secretariat’ (G/SCM/W/546/Rev.6), dated 14 April 2015, at 3.

122 WTO Committee on Subsidies and Countervailing Measures, ‘Report 2016’ (G/L/1157), dated 31 October 2016, at 2. This represents a limited improvement from the previous year, when the numbers were 21 members and 6 members respectively: WTO Committee on Subsidies and Countervailing Measures, ‘Report 2015’ (G/L/1133), dated 29 October 2015, at 2.

123 For this purpose, the EU and its 28 Member States are counted as a single member.

124 Art 25.7 SCM Agreement; see eg review of 2015 and 2013 subsidy notifications in: WTO Committee on Subsidies and Countervailing Measures, ‘Minutes of the Special Meeting held on 27 October 2015’ (G/SCM/M/94), dated 2 February 2016.

125 SCM Agreement, arts 4 and 7 on multilateral remedies for prohibited and actionable subsidies respectively.

126 Note that, in the India – Solar Cells (2016) dispute (n 103), the initial US claims under the SCM Agreement were later withdrawn and thus not counted here.

127 In addition to the joint complaints in Canada – Renewable Energy (2013) discussed above (n 1): United States — Certain Measures Relating to the Renewable Energy Sector, Request for the Establishment of a Panel by India (WT/DS510/2) dated 24 January 2017; European Union and Certain Member States — Certain Measures on the Importation and Marketing of Biodiesel and Measures Supporting the Biodiesel Industry, Request for Consultations by Argentina (WT/DS459/1) dated 23 May 2013; European Union and Certain Member States — Certain Measures Affecting the Renewable Energy Generation Sector, Request for Consultations by China (WT/DS452/1) dated 5 November 2012; China — Measures Concerning Wind Power Equipment, Request for Consultations by the United States (WT/DS419/1) dated 6 January 2011.

128 SCM Agreement, Part V on the imposition of CVDs as a unilateral remedy to offset the effects of a specific subsidy in the domestic market of the importing WTO member.

129 IISD/UNEP Handbook 2014 (n 13) 105.

130 The conduct of anti-dumping and countervailing duty investigations are very similar in procedural terms, but differ on the substantive conditions to be established for the imposition of trade remedy measures. Under the Anti-Dumping Agreement, three basic requirements need to be met: (i) there are dumped imports (instead of subsidized imports); (ii) there is material injury (or threat thereof) to the domestic industry producing the like product; and (iii) there is a genuine and substantial causal link between the dumped imports and the injury. See further, van den Bossche (n 68) Ch 11.

131 For a discussion, see Kulovesi (n 114) 348–351; and Shadikhodjaev (n 2) 488–93.

132 United Nations Conference on Trade and Development, Trade Remedies: Targeting the Renewable Energy Sector (2014) 13.

133 ibid, 3–4. The other 16 cases instead concerned biofuels (ie, biodiesel and ethanol).

134 Note that the introductory words of art 107(1) TFEU (‘save as otherwise provided in the Treaties’) make clear that the prohibition is not absolute.

135 In addition, the Council acting on a proposal from the Commission may introduce further derogations if needed: art 107(3)(d) TFEU.

136 Automatic compatibility includes State aid: having a social character (art 107(2)(a)); necessary to make good the damage caused by natural disasters or exceptional occurrences (art 107(2)(b)); and granted to the economy of certain areas of Germany affected by the cold war division (art 107(2)(c)). In these cases, the Commission has no discretion as to whether or not to authorize the aid, but merely ascertains that the conditions set out in art 107(2) TFEU are fulfilled. See further, Bacon (n 62) 95–100.

137 Discretionary compatibility includes: cohesion aid (art 107(3)(a)); aid to important projects of common European interest or to remedy a serious disturbance in the economy of a Member State (art 107(3)(b)); and aid to promote culture and heritage conservation (art 107(3)(d)). See further, Bacon (n 62) 100–13.

138 M Blauberger, ‘From Negative to Positive Integration? European State Aid Control through Soft and Hard Law’ (2008) Max Planck Institute for the Study of Societies Discussion Paper 08/04, at 3 and 5, <http://www.mpifg.de/pu/mpifg_dp/dp08-4.pdf>.

139 See, inter alia, arts 191 and 194(1)(d) TFEU; see also Communication Energy 2020 (n 38) and Communication Climate and Energy 2030 (n 54).

140 For more information: <http://ec.europa.eu/competition/state_aid/modernisation/index_en.html>.

141 Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in the application of arts 107 and 108 TFEU, OJ [2014] L187/1 [2014 GBE Regulation]. This replaced: Commission Regulation (EC) No 800/2008 declaring certain categories of aid compatible with the common market in application of arts 87 and 88 of the Treaty, OJ [2008] L214/3 [2008 GBE Regulation].

142 2014 GBE Regulation (n 141), Preamble, para 6.

143 See (n 51).

144 European Commission, ‘Memo – State Aid: Commission adopts new General Block Exemption Regulation’ (14/369), dated 21 May 2014 [Commission Memo 2014] at 2, estimating that ‘3/4 of today's aid measures and about 2/3 of total aid amounts granted by Member States could be covered by the new GBER’.

145 2014 GBE Regulation (n 141), arts 1(2)(c) and (d); similarly, 2008 GBE Regulation (n 141), arts 2(a) and (b).

146 Usually referring to one-off aid measures covering upfront capital costs of investing in the production of energy from renewable energy sources (eg, grants and preferential loans): Commission WD 2013 (n 49) 11.

147 Defined as ‘renewable non-fossil energy sources’: wind, solar, aerothermal, geothermal, hydrothermal and ocean energy, hydropower, biomass, landfill gas, sewage treatment plant gas and biogases: 2014 GBE Regulation (n 141) art 2 (110).

148 Usually referring to aid measures covering production-based costs of renewable energy generation (eg, price-support instruments): see Commission WD 2013 (n 49) 11.

149 2014 GBE Regulation (n 141) arts 41–43. cf 2008 GBE Regulation (n 141), art 23, covering only investment aid for the promotion of energy from renewable energy sources.

150 eg, on ‘transparent aid’: 2014 GBE Regulation (n 141) art 5.

151 ibid, art 4(1)(s).

152 2008 GBE Regulation (n 141) art 6(1)(b).

153 2014 GBE Regulation (n 141) art 41(5).

154 ibid, art 41(6), these are the extra investment costs to promote the production of energy from renewable sources.

155 ibid, arts 41(7) and (8). These maximum aid intensities are roughly the same as those found under the former 2008 GBE Regulation (n 141) art 23(2).

156 2014 GBE Regulation (n 141) art 41(10).

157 2014 GBE Regulation (n 141) art 42(2).

158 ibid, art 4(1)(v).

159 ibid, art 42(3) and (4).

160 ibid, arts 42(8) and 4(1)(v).

161 Commission Memo 2014 (n 144) 1.

162 2014 GBE Regulation (n 141) Preamble, paras 16 and 61.

163 ibid, Chapter II.

164 European Commission, ‘State Aid Scoreboard 2016’ <http://ec.europa.eu/competition/state_aid/scoreboard/index_en.html>. No specific data on renewable energy support measures is available.

165 European Commission, ‘Community Guidelines on State Aid for Environmental Protection’, OJ [2008] C 82/1 [2008 Guidelines]. Formally speaking, these are not legally binding on the Member States, but are so for practical purposes since they guide the Commission's assessment and decision-making on the compatibility of State aid with the internal market.

166 2014–2020 EEA Guidelines (n 51) section 1.2.

167 ibid, section 1.1(15).

168 ibid, section 6.

169 This test was first set out in: European Commission, ‘State Action Plan – Less and Better Targeted State Aid: A Road Map for State Aid Reform 2005–−2009’ COM(2005) 107final (7 June 2005). It has been subsequently developed in the Commission's guidelines: see eg, 2008 Guidelines (n 165) section 1.3.

170 This is an advance from the 2008 Guidelines (section 1.4), under which a detailed assessment under the ‘balancing test’ was only required in respect of certain environmental aid measures (listed in Chapter 5, and including operating aid for the production of RE electricity), while for others (listed in Chapter 3) there was a presumption the balancing test would lead to a positive result if certain conditions were met (eg, section 3.1.6 for RE investment and operating aid).

171 2014–2020 EEA Guidelines (n 51) section 3.2.1

172 ibid, section 3.2.2 for further details.

173 ibid, section 3.2.3.

174 ibid, section 3.2.4.

175 ibid, section 3.2.5.

176 ibid, section 3.2.6.

177 ibid, sections 3.2.7 and 6.

178 These reflect the need for State intervention determined, on the one hand, by the relevance of the market failure and, on the other hand, by the expected level of distortion on competition and trade: ibid, section 3.2.5.1(77).

179 Defined as the extra investment costs in tangible and/or in intangible assets which are directly linked to the achievement of the environmental or energy objective, and calculated as specified therein: ibid, section 3.2.5.1(72–6).

180 ibid, Annex I.

181 ibid, section 3.2.5.1(80).

182 ibid, section 3.3.2.1(124). In addition, beneficiaries are subject to standard balancing obligations and measures must be in place to ensure they have no incentive to generate electricity under negative prices.

183 Commission WD 2013 (n 49) 8–9 and 12–13.

184 2014–2020 EEA Guidelines (n 51) section 3.2.5.1(126).

185 ibid, section 3.2.5.1(126). Only under a limited number of circumstances are Member States still allowed to grant aid without such an allocation process (eg, to avoid strategic bidding or underbidding).

186 In this case, the Commission will presume that the aid is proportionate and does not distort trade and competition to an extent contrary to the common interest: ibid, section 3.3.2.1(126).

187 ibid, section 3.3.2.1(126).

188 ibid, section 3.3.1(121). In addition, the Guidelines promote cross-border cooperation with the Commission giving positive consideration to Member States operating aid schemes for green electricity that are open to other EEA countries and Contracting Parties of the Energy Community: section 3.3.1(122). In this regard, see also 2016 Proposed Directive (n 55), art 5, requiring Member States to open their support schemes for green electricity to generators located in other Member States under the conditions laid down therein (ie, for at least 10 per cent of the newly-supported capacity in each year between 2021 and 2025 and at least 15 per cent of the newly-supported capacity in each year between 2026 and 2030).

189 See section II.B. In particular, 2016 Proposed Directive (n 55), art 4 provides that ‘[s]upport for electricity from renewable sources shall be designed so as to integrate electricity from renewable sources in the electricity market and ensure that renewable energy producers are responding to market price signals and maximise their market revenues’ and that ‘Member States shall ensure that support for renewable electricity is granted in an open, transparent, competitive, non-discriminatory and cost-effective manner.’

190 Commission WD 2013 (n 49) 4.

191 Commission Memo 2014 (n 144) 2.

192 Commission WD 2013 (n 49) 22; 2014–2020 EEA Guidelines (n 51) section 3.3.1(108–9).

193 Commission WD 2013 (n 49), 7.

194 ibid, 3 and 22.

195 For this purpose, small installations are defined as those with an installed electricity capacity of less than 6MW of wind power (or 6 generation units), or 1 MW of power from other renewable sources, such as solar or biomass: 2014–2020 EEA Guidelines (n 51) section 3.3.2.1(127). In the absence of a competitive bidding process, specific conditions are set out in section 3.2.2.2(131).

196 For this purpose, small installations are defined as those with an installed electricity capacity below 3MW (or 3 generation units) for wind energy, or 500kW for other sources: ibid, section 3.3.2.1(125).

197 Rubini (n 2) 577; and Rubini (n 3) 4.

198 Flett (n 87) 4–5.

199 Rubini (n 2) 577.

200 See further Bacon (n 62) 11. Indeed, the ‘balancing test’ at the heart of the Commission's evaluation of notified environmental/energy State aid goes beyond weighting its contribution to achieving a legitimate objective against its trade-distortive effects, and also considers the cost-effectiveness of the aid (ie, via the incentive effect and proportionality of aid elements). Arguably, these additional considerations are not suited to the WTO context.

201 See section III.B.

202 See section II.A.

203 SCM Agreement, art 8.2. Pursuant to art 31 SCM Agreement, the category of non-actionable subsidies was in place for a five-year provisional period, and in the absence of an agreement to renew it, ceased to exist on 1 January 2000.

204 For a more detailed examination, see Bigdeli (n 3) 10–11 and 17–19.

205 This is suggested by Rubini (n 2) 577, fn 196. In a similar vein, see renewables-specific ‘due restraint’ clause proposed in Shadikhodjaev (n 2) 496–7.

206 Bigdeli (n 3) 20. In fact, renewable energy subsidies do not seem to have received dedicated attention within the WTO Negotiating Group on Rules, where negotiations take place with a view to clarifying and improving disciplines under the Anti-Dumping Agreement and the SCM Agreement in light of the Doha mandate: WTO Ministerial Conference (Fourth Session), ‘Ministerial Declaration’ (WT/MIN(01)/DEC/1), adopted 14 November 2001, para 28. This is in sharp contrast with the case of fisheries subsidies: see most recently, WTO Negotiating Group on Rules, ‘Fisheries Subsidies – Compilation Matrix of Textual Proposals Received to Date’ (TN/RL/W/273), dated 28 July 2017.

207 Cosbey and Mavroidis (n 2) 41.

208 Howse (n 2) 1.

209 Bigdeli (n 3) 20 and 36. Under the expired art 8 SCM Agreement, non-actionable subsidies were subject to prenotification (art 8.3), review first by the Secretariat and then by the SCM Committee with possibility of arbitration if disagreement therein (arts 8.4 and 8.5), as well consultations and authorized remedies in case of ‘serious adverse effects’ to the domestic industry of another WTO member (art 9). However, during its formal application from 1994 to 1999, not one single notification was made under art 8.3 SCM, nor were the other provisions ever invoked: Bigdeli (n 3) 8 and 11.

210 On this question, see Farah and Cima (n 15) 1113–16; Rubini (n 2) 561–6; Shadikhodjaev (n 2) 499–505.

211 Even though this seems unlikely in light of prevailing Appellate Body's jurisprudence, which accepts the applicability of art XX GATT for violations of non-GATT provisions only in the presence of a specific textual link: WTO Appellate Body Report, China – Measures Related to the Exportation of Various Raw Materials, WT/DS394/DS395/DS398/AB/R, adopted 22 February 2012 [China ? Raw Materials (2012)], paras 303–306; and WTO Appellate Body Report, China – Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum, WT/DS431/DS432/DS433/AB/R, adopted 29 August 2014, paras 5.63–5.65 and 5.74.

212 Art XX(b) GATT; WTO Appellate Body Report, Brazil — Measures Affecting Imports of Retreaded Tyres, WT/DS332/AB/R, adopted 17 December 2007 [Brazil – Retreaded Tyres (2007)] para 178.

213 Both entail an inquiry into the following: (i) whether the aid measure is aimed at an important legitimate objective of common interest; (ii) the extent to which it contributes to the achievement of the objective sought; (iii) the availability of less trade-distortive (2014–2020 EEA Guidelines) or trade-restrictive (art XX GATT) alternatives that would make an equivalent contribution to the achievement of said objective.

214 This has been interpreted as requiring a ‘close and genuine relationship’ between ends and means: WTO Appellate Body Report, United States — Import Prohibition of Certain Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998, para 141; Appellate Body Report, China ? Raw Materials (2012) (n 211) para 355.

215 Appellate Body Report, Brazil — Retreaded Tyres (2007) (n 212) para 151, where it suggested that ‘measures adopted in order to attenuate global warming and climate change’ may in principle fall within the purview of art XX(b) GATT .

216 See section III.A.

217 G Horlick and A Peggy, ‘Rethinking Subsidy Disciplines for the Future – Synthesis of the Policy Options’ (International Centre for Trade and Sustainable Development/World Economic Forum, January 2016); and Kulovesi (114) 354–5 on how the European Commission considered climate change policy objectives in the context of the anti-dumping investigations against cheap solar panels from China.

218 WTO Committee on Subsidies and Countervailing Measures, ‘Questionnaire Format for Subsidy Notifications under Article 25 of the Agreement on Subsidies and Countervailing Measures and under Article XVI GATT’ (G/SCM/6/Rev.1), dated 11 November 2003.

219 WTO News Item, ‘Chair Cites “Discouragingly Low” Compliance with WTO Subsidy Notification requirements’ (25 October 2016) <https://www.wto.org/english/news_e/news16_e/scm_28oct16_e.htm>.

220 For a similar view, see Casier and Morenhout (n 2) 6–7.

221 On this point, see further G. Marín Durán and I. Espa, ‘Government Support to Renewable Energy and WTO Subsidy Law – Revisiting the Case for Reform Beyond Canada – Renewable Energy/FIT Program' forthcoming WTR.