How the WTO Can Help Address Climate Change
WHY SUBSIDIZE? Instead of imposing costs on individuals to force them to address climate change, many countries provide subsidies. There are subsidies for wind power, for biofuels, for research and development, for individuals to insulate their homes or to purchase energy efficient appliances and for carbon sinks. Some of these subsidies may be useful elements of a country’s climate change plan. Yet, as with tariffs, regulations and taxes, subsidies have trade impacts. They can hinder access of exports from non-subsidizing countries to the markets of the subsidizing country or third countries. They can also lead to displacement of domestic products in home markets of non-subsidizing countries. This chapter examines the WTO rules relating to subsidies and what they mean for domestic climate change policies. As it turns out, WTO rules on subsidies are quite strict, particularly for export subsidies. We first look at why countries may want to use subsidies and the potential advantages and disadvantages of this approach to climate change. We then turn to the specific WTO rules and examine what constitutes a subsidy under WTO agreements and the basic rules around both domestic and export subsidies. Finally, we draw together some of the lessons from the chapter to return to our central questions about whether WTO rules can address climate change effectively, and the implications of the rules for who determines what policy choices are permissible. 7.1.1 Subsidies and Externalities Many countries have turned to subsidies as a primary means of addressing climate change. While economists tend...
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