National climate change policies and WTO law: a case study of Germany's new policies

Abstract

This article analyses the relationship between national climate change policy instruments and WTO rules with particular emphasis on the case of Germany. Our main finding is that national policies whose aim is to reduce greenhouse gases can be brought into compliance with international trade law. Compliance can be achieved, first, through various methods of labelling electricity from renewable resources. Second, it can be achieved through trading systems for green certificates that respect basic WTO principles. Third, it can be achieved through energy taxes. To offset the competitive impacts of such taxes, border tax adjustments are a possibility. Although WTO law has not yet clearly defined the eligibility of border tax adjustments for energy taxes, the balance of evidence suggests that it would support such adjustments under certain circumstances. Fourth, compliance with WTO rules can be achieved through financial incentives to the producers of energy from renewable sources which are conferred in such a way that they do not pass through the hands of the government. Hence, climate change policies can even rely on ‘subsidies’ (in the economic sense) without getting into conflict with WTO rules. Fifth, when compliance cannot be achieved, national policies aiming at international environmental protection can claim an exception under GATT Article XX (b) or (g) if measures are not applied in an arbitrary or discriminatory manner. In addition, countries should further strive to find solutions to the global climate change problem in the Kyoto process.