Studies in Policy Choices and Interactions
Edited by Larry Kreiser, Mikael S. Andersen, Birgitte E. Olsen, Stefan Speck, Janet E. Milne and Hope Ashiabor
Chapter 11: Renewable energy: subsidies and taxes as competition distortion
Governmental support for renewable energy production and consumption is an important tool to increase energy efficiency, to reduce carbon emissions and thereby to achieve sustainability objectives. A government can offer financial support in the form of subsidies or tax incentives, such as offering preferential tax treatment for economic operators or imposing higher taxes on the emission-intensive use of energy. However, such measures bear the risk of being not compliant with international trade law: The regulatory framework of the World Trade Organization (WTO Law) enshrines important non-discrimination principles, which can cause conflicts with environment-protective measures. WTO Law qualifies electricity as a good leading to the applicability of the General Agreement on Tariffs and Trade (GATT). Therefore, WTO Members are bound by the key disciplines of WTO Law, namely the obligation to accord national and most-favoured nation (MFN) treatment to like products of all WTO Members (Article I and III GATT). With regard to the design of domestic tax schemes in particular, WTO Members are obliged to follow the non-discrimination-obligations set forth in Article III GATT. As far as subsidies are concerned, WTO Law encompasses general principles stated in Articles VI and XVI GATT as well as detailed specific provisions in the Subsidies and Countervailing Measures (SCM) Agreement.
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