This is former AB Member Jim Bacchus, writing in the International Business Times:
Ordinarily, for all the reasons [Adam] Smith gave us, subsidies should be avoided, and the matter of sorting out our sources of energy should be left to free trade and to free competition in the marketplace. But far more is at stake here than on other market issues where price alone is the principal consideration. And, given the price gap between renewable and fossil fuels, if we rely on market forces alone, the inevitable age of renewables may be indefinitely postponed to the detriment of mankind.
Far better than governmental subsidies would be some form of a carbon tax that would provide significant economic incentives for energy consumers to switch away from fossil fuels and toward renewable sources of energy. Unfortunately, in almost every part of the world, politicians lack the political will to exercise the visionary leadership needed to impose a carbon tax.
So, in the near term, the only practical alternative for producing renewable energy that can hope to compete with carbon on price seems to be to have government subsidize it. Grants, tax incentives, and other governmental subsidies can begin to help us diminish our dependency on carbon and thus combat climate change by narrowing the considerable price differential between renewable and fossil fuels. But such subsidies cannot succeed so long as WTO rules make them illegal under international law.
In the absence of any real prospect for carbon taxes, it makes sense to support subsidies that ease the necessary transition to low-carbon economies. Thus it makes sense to change WTO rules to permit such green subsidies. An exemption for green subsidies that further the fight against climate change should be created by the members of the WTO.
Forcing companies to buy equipment from local manufacturers as a condition of the price breaks they get through “feed-in tariffs” is certainly bad policy. As Adam Smith would doubtless tell us, too, such domestic content requirements are out-and-out protectionism.
But we also need some new rules.
What of the many other complicated questions about the interrelationship between trade and green energy? Not all of them can be answered fully in legal proceedings in WTO dispute settlement, where WTO judges are rightly confined by the boundaries of the existing WTO rules. And not all of the existing rules necessarily draw all of the right lines in all of the right ways.
If not domestic content requirements, then what forms of trade discrimination, if any, should be allowed by the WTO for the sake of fighting climate change? Is it possible to support renewable energy without distorting trade? Can we minimize trade distortions while maximizing climate returns? Can we craft new WTO rules in ways that will encourage climate-friendly subsidies and other climate-friendly governmental measures without permitting them to become pretexts for protectionism?
All of this should be negotiated by the members of the WTO. And yet few current governmental decision-makers are even asking, much less answering, these critical questions. Changing the rules to create an exemption for green energy is not yet on the WTO negotiating agenda. It should be.
Here's what I said on the issue a while back in a law journal article:
As a final point, for those who are concerned about international restrictions on the use of subsidies, and worry that the art XX exception will not provide sufficient flexibility, it should be recalled that subsidies regulation still excludes one category of subsidies almost entirely. Regardless of how producer subsidies are treated, subsidies to consumers are likely to be consistent with the rules (unless they result in de facto discrimination against foreign producers, or have discriminatory conditions attached). To illustrate this, compare the SCM Agreement’s treatment of a subsidy to the domestic producers of electric cars with the treatment of a subsidy to consumers who purchase electric cars of any origin, referred to above. The latter is much more likely to be found consistent. Thus, if it turns out that an enhanced focus under WTO rules on rooting out protectionist subsidies proves too intrusive into domestic affairs, even with the art XX exceptions being applied, a switch to subsidizing consumption might provide an effective way to achieve non-protectionist goals without violating WTO rules.
Does that help the matter? Are subsidies to producers the main problem, and would subsidies to consumers be an effective and WTO-consistent way of promoting green energy?