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ABSTRACT
Scaling-up clean energy is vital to global efforts to address climate change. Promoting international trade in clean energy products (e.g. wind turbines, solar panels) can make an important contribution to this end through business and market expansion effects. If ratified, the landmark Paris COP21 Agreement will commit states to firmer climate actions, this necessarily requiring them to strengthen their promotion of clean energy technologies. Well over a hundred countries already have active policies in this area, many including industrial policy measures that impact on the international competitiveness of their clean energy sector. At the same time, governments have gradually liberalised their clean energy trade regimes, and large producers are negotiating an Environmental Goods Agreement (EGA). Clean energy trade is expanding and disputes among nations in this sector are growing. The World Trade Organisation (WTO) still has limited ‘policy space’ for climate action. Meanwhile, the United Nations Framework Convention on Climate Change (UNFCCC) still had narrow and infrequent connections with trade matters. Moreover, WTO-UNFCCC engagement on trade-climate issues overall has been largely confined to information sharing and secretariat-level dialogue. This paper explores the extent to which clean energy trade is currently governed, where certain governance gaps and deficiencies exists, and argues why addressing them could help expand trade in clean energy products. It also contends that the most fundamental challenge for the future governance of clean energy trade concerns how to reconcile ramped-up interventionist climate action with an essentially liberal trade order.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes
1 The Stern Review (Citation2006) was one of the earliest reports to acknowledge this, stating: ‘the reduction of tariff and nontariff barriers for low-carbon goods and services, including within the Doha Development Round of international trade negotiations, could provide further opportunities to accelerate the diffusion of key technologies’ (pg. xxv).
2 While code harmonisation has been achieved at the HS 6-digit ‘sub-heading’ classification level generally worldwide, there remains some variance of practice at the more specific 8- and 10-digit levels, where much of clean energy's supply-chain trade in component and parts (e.g. for solar panels and wind turbines) is located.
3 For example, ball bearings (e.g. HS code 8482.10.20) are a key component in wind turbine generators as well as other industrial applications non-related to clean energy. Similarly, drilling pipes used in geothermal energy exploration may too be used in the oil and gas sector.
4 These arise when certain parties argue for including ‘cleaner’ energy technologies in trade talks. During the Doha Round negotiations on EGS, Qatar proposed that combined-cycle natural gas and advanced gas-turbine systems be considered eligible based on their energy-efficiency credentials (ICTSD Citation2006). If tariffs are eliminated on such products subsequent difficulties arise when trying to confer trade advantages to more fundamental clean energy sectors like renewables: under WTO rules once it is agreed to lower tariff levels they cannot be raised in future negotiations.
5 For example, renewable energy currently contributes around a quarter of global power generation but the solar PV sector has experienced 30–40 per cent annual market growth rates over the last decade, and wind energy around 20 per cent (REN21 Citation2015, Citation2016). Electric vehicles may still have a very small share of the global automotive market but annual production and sales growth has averaged at over 100 per cent between 2010 and 2014 (IEA Citation2015a).
6 Australia, Canada, China, Costa Rica, EU-28, Hong Kong, Japan, New Zealand, Norway, Singapore, South Korea, Switzerland, Taiwan, and the US.
7 Up until 2010, the US had a positive trade balance with China in the solar energy sector, exporting high valued-added PV capital equipment and polysilicon and then only relatively small volumes of imported Chinese PV modules and cells. The EU's trade deficit with China in the sector has been far greater, partly because it is not a major polysilicon producer. Europe accounts for around 60 per cent of China's PV export market and the sector roughly 7 per cent of Chinese total exports to the region (Lewis Citation2014).
8 By 2014, this had recovered somewhat, with Chinese exports of PV cells rising to US$14.4 billion and for all solar PV equipment the equivalent of 22GW installed capacity (well over half of that year's 39GW addition to global installed PV capacity) to 192 countries. Japan overtook the EU as the largest importer of Chinese PV products owing to generous new demand side policies introduced by the Japanese government in its post-Fukuyama energy policy. Similar domestic market support provided by the Chinese government around the same time led to sharp rises in imported polysilicon (26 per cent in 2014, main sources being South Korea, Germany and the US) and a redirection of sales from export to home markets (IEA Citation2015b). This involved a mix of state financial incentives and mandatory targets set for China's power generation companies (Dent Citation2014, Solar Power Europe Citation2015).
9 For example, in 2012 the Indian Solar Manufacturers Association filed a petition against the alleged price dumping practices of US, Malaysian, Chinese, and Taiwanese solar PV manufacturers (Wu and Salzman Citation2014).
10 The discrepancy in export and import figures can be explained by differences in reporting and calculating methods used by governments for the same trade flows.
11 For example, the Electricity Generating Authority of Thailand were the main investors in new large-scale hydropower dams built in Laos during the 1990s and 2000s, these then supplying the Thai market almost exclusively through cross-border transmission connections between the two national grids (World Bank Citation2010). By the early 2010s, Kenya was meanwhile planning to export geothermal power to other East African countries. Around the same time, the West Indies Power Holdings companies was devising a strategy to develop a regional interconnection system in the Caribbean for trading in geothermal electricity with World Bank and EU financial assistance. Both Mongolia and Ethiopia were reported to devise plans to become wind energy power exporters (UNEP Citation2013). For some time, there have discussions on hugely ambitious solar energy mega-projects such as DESERTEC (Sahara Desert array system supplying Europe) and GOBITEC (similar in conception and supplying Northeast Asian countries), these being enormously expensive but if realised could contribute very significantly to scaling-up the world's clean energy power generation (REN21 Citation2014).
12 Very Large-Scale Integrated-circuits programme.
13 For example, three of the seven selected sectors of the Strategic Emerging Industries programme in China's 12th Five-Year Plan (2011–2015) were clean energy industries: energy conservation and efficiency technologies, renewables and ‘new energy’ vehicles.
14 As political leaders in both the US and China have recently proclaimed:
We're in a competition all around the world, and other countries – Germany, China, South Korea – they know that clean energy technology is what is going to help spur job creation and economic growth for years to come. And that's why we've got to make sure that we win that competition. I don't want the new breakthrough technologies and the new manufacturing taking place in China and India. I want all those new jobs right here … in the United States of America, with American workers, American know-how, American ingenuity
15 Although the International Energy Agency (IEA) covers all areas of energy policy, it has very limited governance functionality, mainly providing analytical and dialogue-based services only. The global governance of energy (security) is arguably the weakest and most fragmented of the major ‘global challenge’ areas (Florini and Sovacool Citation2009, Goldthau and Witte Citation2010, Van De Graaf Citation2013).
16 Clean Technica News, 17 June 2012 (http://cleantechnica.com/2012/06/17/german-solar-industry-getting-hammered-cheap-chinese-imports).
17 In the wind energy industry, 2013 MFN duty rates for China, Indonesia, Japan, the Philippines, Singapore and Vietnam were zero per cent, Taiwan and Malaysia 5 per cent, South Korea 8 per cent and Thailand 10 per cent. This compared to the EU's 3.3 per cent, the US's 2.6 per cent, Australia's 5 per cent and India's 7.6 per cent rates. A similar pattern is evident for solar PV modules: 0 per cent MFN duties for Japan, Malaysia, Singapore, South Korea and Vietnam, 2 per cent for Taiwan, 7 per cent for the Philippines, and 10 per cent for China, Indonesia and Thailand, which compared to 1.5 per cent for the US, 3.3 per cent again for the EU, 5 per cent Australia and 7.5 per cent India. Low single digit rates apply for both hydropower and biomass power generation equipment, while somewhat higher rates apply in developing countries in the much smaller geothermal sector. Data available from DutyCalcutor.com: http://www.dutycalculator.com.
18 Quebec provincial government's LCR legislation introduced in 2003 on wind power tenders being frequently cited as the earliest case. Soon thereafter a number of Spain's autonomous regional governments trialled the measure in the same industry, and in Brazil (60 per cent threshold), China (40 per cent), India (30 per cent) and in Ontario province (60 per cent, part of its feed-in tariff legislation), Canada plus Ukraine, Malaysia and Turkey (Kirkegaard et al. Citation2009, Cosbey and Rubini Citation2013, Cosbey and Mavroidis Citation2014, Lewis Citation2014, Wu and Salzman Citation2014, E15 Initiative Citation2016).
19 When the US requested consultations with India in 2013 over its LCRs on solar PV it cited WTO rules on national treatment, subsidies and intellectual property rights (UNEP Citation2013).
20 ‘Dumped’ products are allegedly sold in foreign markets at prices well below their domestic market equivalents.
21 Also referred to as anti-subsidy duties.
22 It is normally ‘injured’ home companies that petition their governments to take trade remedy action against alleged offending foreign exporter companies.
23 Of these, 18 cases targeted solar PV, 16 biofuels, and 7 wind energy products.
24 This research also estimated that the application of trade remedy measures during this period reduced clean energy trade by US$14 billion a year, thus by US$82 billion over the 6-year study period in question.. Furthermore, studies by the Swedish National Board of Trade (Citation2013) and Prognos (Citation2013) concluded that ADDs and CVDs on clean energy products had net negative impacts on supply chain cost efficiencies, consumer prices, upstream and downstream (e.g. polysilicon producers and PV installers) business and jobs, and led to additional trade retaliatory actions that exacerbated the situation.
25 This was specifically on the Chinese government’s ‘Demonstration Bases-Common Service Platform’ programme, which was alleged to offer subsidy support for firms meeting export performance criteria. Bridges News, 21st April 2016 (http://www.ictsd.org/bridges-news/bridges/news/ustr-washington-beijing-clinch-deal-in-export-subsidy-disput).
26 Washington Post, 13 August 2013 (http://www.washingtonpost.com).
27 This relates to GATT/WTO Article XI.
28 WTO DSB cases 431 (United States), 432 (European Union) and 433 (Japan), all initiated on 13 March 2012.
29 The Energy Charter Treaty, initiated by the EU in early 1990s to primarily manage imported pipeline gas, is currently the world's largest governance structure and rules-system for international energy transit trade, with membership extending from West Europe to Central Asia (Australia is also a member), and hence is not global.
30 For example, the tuna/dolphin and shrimp/turtle cases of the 1990s.
31 Export restrictions for environmental reasons are, though, potentially permissible under Article XX, for example as applies to the rare earths case due to the notable environmental impacts generated from mining these minerals.
32 EGA parties are Australia, Canada, China, Costa Rica, the EU-28, Hong Kong, Iceland, Israel, Japan, Liechtenstein, New Zealand, Norway, South Korea, Switzerland, Singapore, Taiwan (Chinese Taipei), Turkey, and the US.
33 This more or less satisfied the precedent set by the aforementioned ITA whose threshold of 90 per cent global market share was designed to avoid free-riding by non-signatory countries.
34 Officially known as the Agreement on Implementation of Article VI.
35 The last case (DS510) was initiated by the US against India's renewable energy sector, and the previous two before this (DS473 and DS480) were initiated by respective complainants Argentina (December 2013) and Indonesia (June 2014) concerning the EU's application of ADDs on biodiesel exports from these two countries.
36 The 1994 North American Free Trade Agreement (NAFTA) and Canada's agreements with certain Latin American states being early examples.
37 For example, the EU-Korea FTA (in force from July 2011) utilises an Article XX-type exception regarding trade facilitation for ‘legitimate policy objectives such as the protection of national security, health and the environment’ (Article 6.1[g]). More significantly, the EU-Singapore FTA (negotiated in 2014 but not in force at time of writing by mid-2016) text contains a whole chapter on sustainable energy with ASCM-relevant provisions on ‘Prohibited Subsidies’ (Article 12.7), a ‘best endeavours’ commitment to address adverse competition effects caused by ‘Other Subsidies’, and an annex (12-A) listing permissible subsidy actions under certain circumstances, e.g. meeting specific environmental objectives. In addition, Chapter 7 of this agreement includes obligations on ‘Non-Tariff Barriers to Trade and Investment in Renewable Energy Generation’, most notably: avoiding the use of LCRs; transparent and objective certification and licencing procedures; mutual recognition of compliance testing on solar PV, wind energy and other environmental goods (E15 Initiative Citation2016). Meanwhile, the Trans-Pacific Partnership (Negotiated in 2015 between 12 APEC member economies but not fully ratified at time of writing by mid-2016) comprises measures for all parties to remove tariffs on environmental goods and enhance trade facilitation on environmental services. Its Environment chapter contain provisions on NTB elimination, while its ‘Transition to a Low Emissions and Resilient Economy’ section (Article 20.15) includes non-legally binding statements of intent on mutual co-operation among parties, making explicit reference to energy efficiency, low-energy emission technologies, renewable energy and sustainable transport systems. In a similar ‘aspirational’ vein, Article 13.6 of the EU-Korea FTA commits both sides simply to ‘strive to facilitate trade’ in environmental goods and services, while in the EU's FTAs with Colombia, Peru and Central America parties ‘agree to consider’ areas where eliminating trade barriers would support endeavours on climate change mitigation and sustainable development.
38 WTO website: ‘The Doha mandate on multilateral environmental agreements’, https://www.wto.org/english/tratop_e/envir_e/envir_neg_mea_e.htm.
39 Convention on International Trade in Endangered Species of Wild Fauna and Flora.
40 International Tropical Timber Organisation.
41 International Commission for the Conservation of Atlantic Tunas.
42 Convention for the Conservation of Atlantic Marine Living Resources.
43 As yet, no timetable – country-specific or otherwise – has been incorporated into the accord. However, the scientific consensus is that we have already reached the 1°C mark, and that zero net emissions globally will need to be realised around mid-century for achieving the 1.5°C goal.
44 Singapore is one of the very few nations to have acted on Article 3.5, when in its October 2011 submission to the UNFCCC's Subsidiary Body for Scientific and Technological Advice (UNFCCC Citation2011) criticised the then emerging trend of trade remedy measures being applied on clean energy and other environmental goods, noting that:
The UNFCCC provides flexibility to its Parties to adopt domestic actions as part of their efforts to combat climate change. However, experience in area of Antidumping and Safeguard Measures in trade tells us that even permitted measures can be abused. Hence, as required by the UNFCCC Article 3.5 and the WTO Agreements, all Parties, both developed and developing, have a responsibility to adhere fully to their UNFCCC and WTO obligations in maintaining a supportive, open and rules-based multilateral trading system. (p. 8)
45 Article 2.1(a) contains policy recommendations on enhancing energy efficiency (i); research on, and promotion of
new and renewable forms of energy, of carbon dioxide sequestration technologies and of advanced and innovative environmentally sound technologies’ (iv); and the ‘progressive reduction or phasing out of market imperfections, fiscal incentives, tax and duty exemptions and subsidies in all greenhouse gas emitting sectors that run counter to the objective of the Convention and application of market instruments (v).
46 The Guardian, 14 December 2015; New Scientist, 12 December 2015; BBC News, 13 December 2015.
47 An October 2011 submission made by Singapore to the UNFCCC's Subsidiary Body for Scientific and Technological Advice (UNFCCC Citation2011) summed up the case for the WTO's primacy over the UNFCCC on governing climate-related trade matters by stating:
Parties should ensure that any outcome at the UNFCCC does not undermine the delicate balance of rights and obligations contained in the WTO Agreements. As a general principle, discussions in the UNFCCC should respect the competencies of other multilateral bodies. The WTO remains the only competent multilateral body with the requisite expertise to deal with trade rulemaking. The UNFCCC is not competent to review, rewrite nor reinterpret the WTO Agreements (p. 8)
48 A reciprocal observer status arrangement between the WTO and UNFCCC has operated since 1995. WTO officials attend COP meetings and the UNFCCC Secretariat is sits in on CTE meetings. At the 2002 World Summit on Sustainable Development in Johannesburg, its resulting Plan of Implementation called for strengthened global institutional co-operation on trade and environment between the WTO and other relevant multilateral bodies (WSSD Citation2002). A UNFCCC (Citation2003) document also specifically highlighted paragraph 98 of the Plan, which in addition committed governments to
promote mutual supportiveness between the multilateral trading system and the multilateral environmental agreements, consistent with sustainable development goals, in support of the work programme agreed through WTO, while recognizing the importance of maintaining the integrity of both sets of instruments. (p. 2)
49 UNFCCC Newsroom, 30 November 2015: http://newsroom.unfccc.int/clean-energy/international-solar-energy-alliance-launched-at-cop21.