The emergence of several rapidly industrializing economies within leading renewable energy technology industries has contributed to more globalized supply chains and an increase in the international trade of renewable energy technologies. In most markets, wind and solar power technologies still require some form of government support to be deployed, yet few countries are willing to subsidize an industry that relies primarily on imported technology. These trends have led to an emergence of trade-related disputes, both via the World Trade Organization and domestic trade remedy channels. Through an analysis of the emerging trade disputes and the prevalence of protectionist polices in the wind and solar industries, this article examines the conflict between the political economy of domestic renewable energy support and the basic principles of global trade regimes, as well as the implications for nations’ abilities to transition to low carbon economies.

The Rise of Renewable Energy Protectionism: Emerging Trade Conflicts and Implications for Low Carbon Development

This paper offers an initial assessment of the use of local content requirements (LCR) in renewable energy policy. It observes that in spite of free trade concerns, many countries with different levels of economic development attach LCR to their support schemes and procurement tenders. The legality and potential effectiveness of LCR are a pressing issue. Because of the financial crisis, public financing for low carbon policies and investments is more limited, especially in austerity-driven jurisdictions. At the same time, such policies and investments are needed to limit and counter climate change. The importance of analyzing opportunity costs, performing rigourous scientific research and discussing the use of LCR is thus self-evident.This paper finds that local content requirements for renewable energy are used frequently, either as a precondition to the receipt of financial support or as part of eligibility requirements in public tenders. They are often attached to mostly expensive public financial support programs to gain some local benefits from increased renewable energy deployment. Most countries using them base their policy choices on political motivations, rather than on economic and empirical analyses, which remain largely absent in the case of LCR. However, it is found that under certain conditions content requirements may be able to facilitate the development of a global innovator that is able to compete on the international market and push down technology costs. These conditions are many, country- and technology-specific and complex. While it is found that LCR will cause short-term costs to the industry and will likely inflate retail power prices alike, a medium-term benefit of increasing competition and innovation on the international market may offset those costs. It is of great importance to note that this is a theoretical possibility. To date, these potential positive spill-over effects have not been demonstrated.On the legal side, it is concluded that LCR for renewable energy are generally prohibited under WTO law. While financial support schemes with LCR attached will likely be ruled illegal, public procurement tenders are hardly disciplined by WTO law and may be permissible. From the scarse empirical literature on local content requirements, it is found that there are a number of initial basic conditions that determine the feasibility of creating domestic industries and, perhaps, subsequently innovators. In addition to a stable and sizeable market, the financial support (to which LCR are often linked) for the renewable energy sector needs to be sufficiently large not to scare off potential investors. The local content rate can also not be too restrictive, and needs to be coupled to learning benefits. Certain knowledge of the current technology increases effectiveness. Finally, when technologies are still in their infancy, the potential of LCR to create global competitors that reduce costs by learning-by-doing is higher. Many countries using LCR, however, do not explicitly target the creation of global innovators. The given basic conditions are broad and necessary, though not necessarily sufficient in the creation of innovative capacity. This paper analyzes the wind LCR in China, and gives descriptive analyses for LCR in Ontario, Quebec, Spain, Italy, France, Greece, Croatia, the US, India, Brazil, South Africa and Turkey.

Local Content Requirements and the Renewable Energy Industry - A Good Match?

International security debates surrounding the European Union (EU) energy supply challenge commonly invoke the need for more EU hard power – e.g. getting tough on Russia or engaging directly with other exporters. This article investigates whether what might be labelled ‘soft power with a hard edge’ instead amounts to a consistent policy strategy for the EU. The central argument is that the EU has turned a weakness into strength, and developed a set of tools that sharpen the way soft power is exercised in the energy sector. The article explores how soft power affects companies that ‘come and play’ on the EU market: the rules of the Single European Market (SEM) and how they affect external firms. It also assesses the long reach of the SEM: both the gravitational ‘pull’ the SEM exerts in the ‘near aboard’, and the EU's ‘push’ to facilitate the development of midstream infrastructure and upstream investment. The conclusion is that the EU regulatory state is emerging as an international energy actor in...

https://www.tandfonline.com/doi/pdf/10.1080/09692290.2015.1008547

Soft power with a hard edge: EU policy tools and energy security

This article investigates the European Commission's external energy policy through the lens of the regulatory state. It argues that because of the nature of its institutions, policy tools and resources, the Commission remains a liberal actor even as the world leaves the benign pro-market environment of the 1990s and becomes more mercantilist – or ‘realist’. The article tests seven hypotheses related to two key challenges as perceived by the Commission: building energy markets, and making them work. It finds that the Commission seeks to project the single market beyond its jurisdiction to deal with transit infrastructure problems; extend international regimes to cover energy trade; deal with monopolists such as Gazprom through classical competition policy; and fix global energy market failures with clear regulatory state tools. Importantly, however, some actions by the Commission can be seen as an attempt to counterbalance external actors, or as second-best efforts to address energy market failures.

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A liberal actor in a realist world? The Commission and the external dimension of the single market for energy

60 years ago, when the rules of the GATT were negotiated, world energy demand was a fraction of what it is today and so were energy prices. While energy has always been a crucial factor in geopolitics, at that time liberalising trade in energy was not a political priority. The industry was largely dominated by state run monopolies and thus governed by strict territorial allocation. International trade in energy resources and products was heavily concentrated, cartelised and controlled by a few multinational companies. This explains why the rules of the General Agreement on Tariffs and Trade (GATT), and now the World Trade Organization (WTO), do not deal with energy as a distinct sector. It was felt that general rules, including the disciplines on state trading, could adequately address trade in energy. Also, no special agreement on trade in energy has emerged in any of the sectorial agreements that have been drawn up since the Kennedy Round. Yet since basic WTO rules are applicable to all forms of trade, they also apply to trade in energy goods and services. Today, these rules

/pdf/energy-in-wto-law-and-policy-xu6gzspw2i.pdf

Energy in WTO Law and Policy

The liberalization of the natural gas market, its grid infrastructure in the European Union and the supply of energy is essentially built upon mutual trust among Member States. Traditional perceptions of national security and control make way to co-operation and integration among Member States and industries concerned. Under recently adopted legislation, it is readily possible that grid infrastructure will be controlled by companies located in another Member State, and gas will be equally traded in a company by non-national operators. However, since European gas supplies largely depend upon imports from abroad, in particular Russia, the relationship to third countries and grids and gas supplies controlled by these countries is of crucial importance. This paper addresses the status of third country operators in the EU. It describes obligations and conditions imposed by what was readily called the Gazprom Clause of Directive 2009/73/EC adopted July 13, 2009  (the Directive). It asks whether this clause amounts to a requirement of reciprocity and assesses whether the clause is compatible with current obligations of the EU under the World Trade Organisation (WTO), in particular the General Agreement on Trade in Services (GATS). Article 11 of the Directive refers to the certification requirements for a transmission system operator from third countries. Article 11(a) requires a foreign operator to comply with all and the same conditions as EU operators under Article 9, in particular unbundling, while the second requirement under Article 11(b) requires that the granting of a certification does not jeopardize the security of energy supply.The question arises to what extent the EU is entitled to impose additional requirements to third State operators under WTO rules. While the issue also bears upon free movement of capital – an issue not examined here - we conclude that the EU is entitled to operate privileged rules under Article Vbis GATS relating to regional integration. The third country clause, entailing additional conditions, neither establishes reciprocity nor is inconsistent per se with WTO law as no obligations to grant national treatment can be currently found in the field. Its operation, however, needs to take into account MFN obligations under Article II GATS. WTO Members are entitled that like and comparable operators are granted most favored nation treatment in the application of ownership rights. It is a question to what extent authorization can take into account diverging levels of supply and thus dependence. We argue that such differences affecting supplies and thus public security can be taken into account, either within MFN or under exceptions relating to public order and national security under Article XIV and XIVbis GATS respectively. The paper sets out with a brief introduction to the EU internal market in natural gas and the concept of unbundling (II). It analyses the third country regime and assesses reciprocity (III) and thus leads to examination of WTO compatibility of the third country regime (IV). It concludes on a note proposing a future framework agreement in energy in the WTO (V).

Third country relations in EU unbundling of natural Gas markets. The "gazprom Clause" of Directive 2009/73 EC and WTO law

Effective policies combating global warming and incentivising reduction of greenhouse gases face fundamental collective action problems. States defending short term interests avoid international commitments and seek to benefit from measures combating global warming taken elsewhere. The paper explores the potential of Common Concern as an emerging principle of international law, in particular international environmental law, in addressing collective action problems and the global commons. It expounds the contours of the principle, its relationship to common heritage of mankind, to shared and differentiated responsibility and to public goods. It explores its potential to provide the foundations not only for international cooperation, but also to justify, and delimitate at the same time, unilateral action at home and deploying extraterritorial effects in addressing the challenges of global warming and climate change mitigation. As unilateral measures mainly translate into measures of trade policy, the principle of Common Concern is inherently linked and limited by existing legal disciplines in particular of the law of the World Trade Organization.

The Principle of Common Concern and Climate Change

Introduction Legal and economic problems relating to climate-change mitigation transgress national boundaries and thus are at odds with the Westphalian system of territorially defined allocations of powers and responsibilities of government. This problem, of course, is not new and has significantly shaped the contours and concepts of international environmental law. States and the international community have shown considerable imagination and engaged in innovative legal engineering to cope with transnational issues. They have crafted emerging principles, rules, and monitoring mechanisms designed to strike a balance between two conflicting requirements: on the one hand, there is a pressing need to put an end to, or at least to slow down, the deterioration of the environment as well as forestalling new damage. On the other hand, there is a necessity for a realistic appraisal of the existing structures and the social and economic costs involved in this process both for developed states and even more so for developing countries. In addition, all of the above is undertaken within a framework of fragmented jurisdictions among states, which adds to the complexity of the task. For such reasons, progress at the legal level has been less conspicuous than one would have expected or desired. But progress has been made. The environment is no longer conceived of from a state-sovereignty-oriented perspective, as an asset that may belong to each state and in whose protection only the state concerned may be legally and practically interested.

Sofya Matteotti-Berkutova

Papers

Energy in WTO Law and Policy

Third country relations in EU unbundling of natural Gas markets. The "gazprom Clause" of Directive 2009/73 EC and WTO law

The Principle of Common Concern and Climate Change

International environmental law and the evolving concept of "common concern of mankind"

Winterkrieg im Gasgeschäft: Ursachen und Auswirkungen