Was that Really Necessary? Some Implications of Trade Law for Alternative Energy

Fostering new forms of alternative energy will be key to effective action on climate change. Governments have tried or are exploring a range of instruments to promote the development and use of alternative energy such as direct financing of research and development, minimum price policies for renewable energy and quotas to ensure use of certain forms of energy. However, these policy instruments have international trade implications and may conflict with World Trade Organization (WTO) rules. This conflict may constrain the direction states can take in promoting alternative energy. In particular, the approach of the WTO agreements or Appellate Body to comparing a Member's chosen policy to alternative policies limits or channels the policy options for governments in a manner which in some instances is not beneficial to the promotion of alternative energy. The role of the WTO in reviewing domestic alternative energy policies is important because who decides on the legitimacy of the policy will determine how the balance is struck between economic growth and environmental protection. Climate change in particular has at its core a range of ethical issues as well as scientific and other forms of uncertainty. It is tempting to argue that these decisions should be left solely to individual states. Unfortunately both climate policy and international trade rules suffer from collective action problems. Reducing greenhouse gas concentrations is an additive public good. There is an incentive for some parties to free-ride on the actions of others, particularly where the costs and benefits of action are unevenly distributed. They may either not take action on climate change or, more importantly for the purposes of this paper, take action which appears to be aimed at reducing greenhouse gas emissions but in fact is not. At the same time, international trade agreements are at least in part aimed at overcoming a prisoners' dilemma. States agree to sign onto trade agreements in order to constrain themselves and others from taking policies that either create terms of trade externalities or protect particular domestic industries. Leaving these decisions on climate change and promotion of alternative energy solely to the discretion of states therefore raises the concern that they will use the decisions to cheat on the trade agreement while purporting to take action on climate change. The WTO may play a role in policing for this type of cheating. There is, however, an issue of the institutional competence and legitimacy of the WTO to undertake this task. This paper examines the rules developed by the WTO to police decisions for protectionism and its ability as an institution to determine the legitimacy of these policies. In particular, it focuses on the extent to which the WTO compares a domestic government's chosen policy ostensibly aimed at reducing GHG emissions through promotion of alternative energy to alternative policies it could have chosen. Given the range of policies that states could use to promote alternative energy, panels and the Appellate Body have a potentially significant role in shaping the course of the development of alternative energy.