RE-related trade disputes began in 2010, accounting for eight per cent of new disputes at the WTO since then. This is not trivial, a signal of growing political and economic sensitivity over market access for RE. There are other signs of trade tension with several countries challenging RE policies unilaterally. During 2010-14, 45 WTO members applied countervailing duties (CVDs) against energy products (including both fossil fuels and RE); and 87 members applied anti-dumping (AD) measures during 2012-14.
Behind the disputes are domestic political economy pressures. The incentive is to capture a slice of the rapidly growing global RE market. Over the past decade more than $2 trillion have been invested in RE plants. Growth in imports of RE equipment outpaced overall global merchandise imports during 2007-2011. This is the basis of the new green economy on which many countries have placed their bets for future innovation, growth and jobs.
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By early 2015, 145 countries had introduced some kind of policies to support RE: fiscal incentives (subsidies, tax breaks), preferential loans and loan guarantees, and R&D support. Trade policy support included import tariffs, export quotas, and export subsidies. Regulatory support included help with land acquisition, standards and certification, RE purchase obligations, and DCRs found in more than a dozen countries. Many of these measures have attracted disputes, particularly DCRs, subsidies, and export restrictions on critical minerals.
But resolving trade disputes is going to be only a partial solution. Trade disputes are time consuming and expensive. WTO judgments have given little clarity to distinguish measures that are trade distorting and those necessary to promote a cleaner energy system. Policy (national and international) must guide dispute resolution, not the other way round.
Alternative governance arrangements are now needed. One option is a Sustainable Energy Trade Agreement (SETA), an agreement with a new product classification system for RE equipment, lower import duties and taxes, gradually phased out DCRs, common standards to facilitate innovation, expedited customs clearance procedures, and clarity on the treatment of subsidies and government procurement. This way, RE-related trade and investment rules could be made more consistent and predictable. SETA could be agreed on a plurilateral basis (like the Government Procurement Agreement), coming into force if signatories collectively accounted for a significant share (say, 90 per cent) of global RE trade. Alternatively, it could be negotiated as a standalone agreement outside the WTO framework.
A second option centres on negotiations on an Environmental Goods Agreement (EGA). Until last year, 17 WTO members had identified 650 tariff lines and more than 2,000 products over which to negotiate further liberalised trade. EGA negotiations are building on a list of 54 tariff lines agreed by the Asia-Pacific Economic Cooperation (APEC) alliance to reduce tariffs to five per cent or less. The expectation is that the EGA will eventually include many more products than APEC agreed. Similarly, in May 2015, 65 countries and international organisations signed an International Energy Charter, a political declaration to cooperate on energy in an attempt to broaden the membership of the pre-existing European Energy Charter.
A third route is to encourage a shift away from mercantilist and protectionist policies altogether and, instead, facilitate multilateral cooperation on RE development and deployment (such as the International Solar Alliance). Coordinating subsidy regimes across member countries could mitigate concerns about loss of competitiveness.
Adjustments could be also made to WTO rules. The Trade Facilitation Agreement could be expanded to cover sustainable energy investment. The scope of "non-actionable" subsidies could be broadened to give policy flexibility on RE by giving members an allowance on a negotiated list of environmentally beneficial subsidies, or testing subsidies vis-a-vis their intended positive environmental impacts, or restricting CVDs against a list of environmental goods. The worst of the options is the current state of legal ambiguity and policy uncertainty with a growing disposition to raise disputes.
RE has become the source of far more trade disputes and trade remedy measures than its share in global trade would warrant. These trade disputes have less to do with protecting market share today. They are, instead, the first forays in what will be an increasingly contested terrain as the global energy system transforms. In this unsettled political economy the actors, rules, procedures and institutions to govern a new energy system are still evolving. There is likely to be far more conflict for now before the dust settles.
The writer is chief executive, Council on Energy, Environment and Water (http://ceew.in). His latest co-edited book, The Palgrave Handbook of the International Political Economy of Energy, is being published this week. He is also co-author of Energizing India (SAGE, 2016).