Policy Options Paper

Enabling the Energy Transition and Scale-up of Clean Energy Technologies: Options for the Global Trade System

January 2016

With the challenges of access to energy, energy security, and the imperative of climate change becoming more pronounced in recent years, interest in clean energy has surged. Mitigation efforts to limit global warming to no more than 2 degrees Celsius or 1.5 degrees Celsius as compared to pre-industrial levels will primarily hinge on a rapid and massive scale-up of clean energy. The December 2015 Paris Agreement on climate change is fundamentally about fostering an urgent and massive transformation to a low carbon or carbon-neutral energy base for the world economy. The urgent need to shift to a cleaner energy mix has thus made reform of the supply and use of energy a key policy priority for the global community. The world has witnessed a spectacular growth of clean energy technologies (CETs) in the past two decades, most of it in response to purposeful international, national, and subnational policies. The result is today’s global and dynamic clean energy industry, encompassing manufacturing, services, and knowledge, mostly organised in international value chains, and highly dependent on trade and investment. All of this activity, however, has highlighted the shortcomings and obstacles of uncoordinated policies and inconsistent rules. The present paper seeks to examine the ways in which current trade policies and frameworks enable or hold back the pressing need for further development of clean energy. Based on this analysis, it identifies a set of policy options for the global trade system to support the scale-up of CETs. A first set of options is related to addressing systemic issues with a view to enhancing trade governance for renewable energy and climate policies in the context of the WTO framework. These proposals include: (i) an amendment of GATT rules; (ii) temporary waivers; (iii) an interpretive understanding to clarify existing obligations; (iv) a plurilateral agreement; and (v) a moratorium on dispute settlement in the area of clean energy. A second set of options addresses reform of existing rules and the formulation of new rules aimed at strengthening markets for CETs as well as responding to the need for any additional policy space that may be required to pursue mitigation and other sustainable development goals through the scale-up of clean energies. The options on strengthening markets consider: (i) scenarios for tariff liberalisation in CETs; (ii) removing barriers to clean energy services; and (iii) addressing regulatory issues such as non-tariff barriers and clean energy access to networks. The options on policy space focus on three areas that could benefit from greater clarity, predictability, and flexibility: (iv) subsidies; (v) local content requirements; and (vi) trade remedies. Many of the options explored in the paper are motivated by the wish to refrain from unnecessarily relying on the WTO’s dispute settlement mechanism to define the limits on how climate action is allowed to interfere with trade. These options range from ambitious proposals for comprehensive reform of the trade system to more gradualist, short-term approaches to support the deployment of clean energy globally.

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