The international trade regime has seen an explosion of challenges to government support for renewable energy in recent years, yet fossil fuel subsidies, which dwarf renewable energy subsidies, have remained unchallenged. Existing explanations for this puzzling discrepancy have focused on four rationales: major fossil fuel exporters have not historically been members of the General Agreement on Tariffs and Trade/World Trade Organization (WTO); WTO subsidies rules are inadequate to deal with the specifics of the fossil fuel trade; nations have developed separate institutions to govern energy; and all states have fossil fuel subsidies, so a challenge to one country’s subsidies will prompt a reciprocal challenge. This article makes two contributions. First, it uses a survey of existing renewable energy trade disputes to critique the existing explanations. Most importantly, the article shows that the threat of reciprocal litigation exists in the renewable energy sector, and that WTO subsidies rules are rarely used to challenge renewable energy subsidies. Hence, neither the threat of reciprocal litigation nor the relative ease of applying WTO subsidies rules explains the discrepancy in the number of disputes. Second, the article hypothesizes that the economic diversification of energy-producing countries is correlated with and may drive whether energy-producing countries face WTO challenges to their energy support policies. Most major fossil fuel producers lack significant non-fossil fuel exports that could be restricted in order to induce them to reform their fossil fuel policies, the usual mechanism for enforcing a WTO judgment. States may also be more likely to challenge new, rather than long-standing, trade restrictions. This suggests that trade challenges will arise more frequently where innovation leads to competition and a demand for new trade restrictions (as in renewable energy), as opposed to in mature sectors of the economy (i.e., the fossil fuel industry). Economic diversification, in turn, is a good predictor of innovation.
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In particular, to qualify as a subsidy, a measure must provide a financial contribution by the government that confers a benefit on the recipient (Article 1 ASCM Agreement). Additionally, the subsidy must be specific, meaning that it is only available to an industry or enterprise or it is prohibited because it is conditioned on either exports or the use of domestic products over imported products (Article 2 ASCM Agreement). Subsidies come in a wide variety of forms, from production subsidies to consumption subsidies, and from direct financial contributions to foregone tax revenue. Government regulations, such as local content requirements, might also be thought of as indirect subsidies. Local content requirements typically require a business to purchase locally produced products as a condition of receiving a government benefit (Hestermeyer and Nielsen 2014; Meyer 2015).
Each of these claims can be broken down further, and some cases raise claims beyond those indicated above. Non-discrimination cases, for instance, typically raise national treatment claims under both the GATT and the Agreement on Trade-Related Investment Measures. Countries also usually raise multiple claims under the ASCM, including that a measure is a ‘prohibited subsidy’ because it is contingent on the use of domestic products over imported products—a form of discrimination. For simplicity, however, I focus on the general nature of the claim and only on these four kinds of claims.
The exception is the US imposition of antidumping and countervailing duties on Chinese and Vietnamese wind components. Although China made these duties a part of a challenge against the USA, Vietnam did not. I therefore list both the domestic investigation against China and Vietnam and the WTO dispute between the USA and China.
The DSB declined to hold that the program constituted a subsidy under the ASCM. Other OPEC members, such as Nigeria and Kuwait, joined a bit earlier, in the mid-1990s.A somewhat more nuanced hypothesis on membership would be that institutions form to resolve conflicts in global energy markets at times in which market power shifts. Because Middle Eastern countries were not in the GATT when production capacity shifted from the USA to the Middle East in the 1960 s, new institutions—OPEC and the IEA—were formed to mediate the resulting conflicts (and have continued to do so). As explained in Sect. 4, production capacity in renewable energy has developed during a time in which all of the major players are WTO members. Conflicts are thus resolved through existing institutions, without the need to establish new ones. This hypothesis, however, still does not explain the lack of forum shopping in the fossil fuel context.
Some energy trade qualifies as trade in services, where the picture is a bit more complicated. Certain obligations in the General Agreement on Trade in Services apply only to affirmatively listed sectors of the economy.
Export restrictions often will create an ‘upstream’ subsidy. For example, by restricting the export of oil, a nation may depress the domestic price of oil, which is a subsidy to energy-intensive domestic producers of other products. Domestic trade investigations aimed at this kind of subsidy do not, however, directly target support for the fossil fuel sector. Rather, they target the energy-intensive product that benefits from cheaper fossil fuels.
India-Autos dealt with import restrictions, but the principle is the same.Esanov (2012) shows that from 1980 to 2006 resource-rich countries had export diversification scores that were three to eight times worse than both high-income countries and emerging markets.
One might object that fossil fuels cannot be relocated among different countries, and therefore, competition among fossil fuel-producing countries is less intense than among renewable energy-producing countries. While this argument certainly has merit, today’s fossil fuel markets have more players than such markets 30 years ago. The expansion of natural gas exports, and in particular the shale gas revolution, has prompted new entrants into the fossil fuel-exporting business (Cohen et al. 2013). These new entrants have boosted competition among fossil fuel exporters much in the way that new players can enter the renewable energy market by developing the ability to manufacture renewable energy equipment. OPEC’s collusive practices, for example, are no longer as effective as they were in the 1970 s (Colgan 2014, 604–605).
Saudi Arabia and Kuwait have never been either a complainant or a respondent; Venezuela has been a complainant once and a respondent twice.
Antidumping and countervailing duty
Dispute Settlement Body
