News and Analysis • Volume 1 • Number 1 • October 2007

The multilateral energy regime at a cross-roads: responding to the climate change and sustainable energy agendas

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Today, tackling climate change and ensuring energy security have emerged as central policy agendas at the global and national levels. Increasingly, the global trade system is being called upon to be part of the solution.

Energy and energy products are central elements of world trade. Presently, such trade is largely dominated by exports and imports of oil and gas. Further advancements in renewable technologies and a global expansion in the production and trade of biofuels are expected to spawn new dimensions in energy trade at the multilateral level.

At the same time, energy-related emissions account for more than 80 percent of global carbon dioxide (CO2) emissions responsible for climate change. The International Energy Agency (World Energy Outlook, 2006) projects that under a business-as-usual scenario, the world will use 53 percent more energy in 2030 than at present, while producing 55 percent more CO2 emissions. However, under the IEA. Alternative Policy Scenario, which assumes the implementation of policies and measures that governments are currently considering to mitigate CO2 emissions, energy-related carbondioxide emissions are cut by 6.3 Gt, or 16 percent, in 2030 relative to the Reference Scenario. Policies that encourage more efficient production and use of energy could contribute 78 percent of avoided CO2 emissions in 2030. Another 12 percent reduction could come from renewables, and ten percent from additional nuclear power.

This makes energy efficiency and the development of renewable energy key aspects of climate change mitigation. The Kyoto Protocol (Art 2.1) also expressly encourages parties to take measures to achieve energy efficiency emhancements and to develop and increase the proportion of new and renewable forms of energy.

WTO rules framing policy

A number of different WTO rules and agreements apply at the intersection of policies and measures to address climate change and sustainable energy. WTO rules and disciplines on subsidies, standards and labelling, taxes, border measures and market access represent opportunities and challenges for advancing policy objectives on climate change and sustainable energy.

As interest in the development of renewable energy is growing, a debate has emerged as to whether a different set of rules and trade disciplines should apply to renewables such as solar, wind and bioenergy. This debate revolves around the issue of “like products” and has critical implications for renewable energy and climate change policies. The most favoured nation (MFN) principle of the (GATT) applies to trade in energy and implies that “like” energy products and materials cannot be discriminated against on the basis of their origin (imports) or destination (exports). Such banned discrimination could take the form of customs duties and charges, as well as taxation. The national treatment requirement applies to internal taxes and charges, laws and regulations. Internal taxes on imported energy material and products should be no higher than for “like” energy material and products of domestic origin.

In implementing their climate change policies and in promoting the development of cleaner sources of energy, a large number of countries have put in place measures that depart from these principles. While the WTO Agreement on Subsidies and Countervailing Measures expressly prohibits subsidies directed at particular industries or sectors, a number of WTO Members provide direct producer and consumer subsidies in the energy sector. In addition, policies such as renewable portfolio standards, feed-in-laws and other similar initiatives – aimed at assisting with high initial costs – result in indirect support to specific firms and sectors. In this context, questions arise as to whether the same treatment should apply to all sources of energy. For many, public support to clean sources of energy are justified on the basis of their social and environmental benefits, which are considered to be “public goods” that benefit society at large.

Performance standards and the WTO

In order to promote the use of more energy-efficient products, several countries have adopted energy performance standards and requirements. Certain countries are also considering complete bans on products such as energy-inefficient light bulbs, which brings about questions regarding the WTO Agreement on Technical Barriers to Trade.

WTO jurisprudence, in cases such as United States – Auto Taxes, supports differentiation between products on the basis of their performance. The panel ruled that fuel-inefficient imported cars were not “like” fuel efficient domestic cars and therefore could be treated less favourably.

Tensions between energy sources on the rise

As clean energy technologies develop and trade in renewable energies expands, the energy regime will increasingly come across tensions between fossil fuels and cleaner energy sources with regard to rules and disciplines that should apply. With climate change and energy security concerns gaining political momentum, their influence on the trade system is likely to increase and would require a realignment of the energy regime in ways that would more adequately consider the interconnections of these various agendas. Formalising such a process would allow the creation of a more transparent and predictable framework, which would benefit both energy exporters and importers.