The fact that the energy sector is not only the primary source of greenhouse gas emissions but also generates the most widely traded commodities in both value and volume places energy trade at the heart of the intersection between trade and the environment. However, it is only in recent years that the international rules governing energy trade and their environmental implications started to feature more prominently in the longstanding debate on trade and the environment. Among the factors putting energy trade governance under growing scrutiny are the ever-intensifying climate change crisis and the attendant need for a rapid transition away from fossil fuels. International trade rules can help accelerate this transition by promoting the development and deployment of renewable energy technologies, but they also have the potential to impede the transition by restricting the discretion of countries to take trade-related energy transition measures.
In a recent open access article for the Journal of world Investment and Trade (JWIT), I examined the role of international trade law in the energy transition. While the trade and environment scholarship tend to focus on specific trade-related energy transition measures (e.g. energy subsidies) and limits itself to assessing the compatibility of such measures with extant international trade law, I adopted a holistic approach that allows for a more comprehensive assessment of the extent to and the ways in which international trade rules influence the energy transition. I did so, by systematically categorizing trade-related energy transition measures into pro- and anti- energy transition trade measures and assessing their treatment under the relevant WTO agreements.
The analysis in the article shows that extant international trade rules are more likely to discourage the adoption of pro-energy transition trade measures than discourage the adoption of anti-energy transition trade measures. This makes their role in the energy transition more detrimental than helpful. This finding is not all too surprising given the current international trade rules were designed for the fossil fuel era with little to no consideration for their environmental implications. The only energy transition friendly provisions under the current legal framework are the conditions-riddled exceptions for unilateral environmental measures contained in the various WTO agreements (e.g. GATT Article XX). Leaving the adequacy of the green policy space that such exceptions provide for governments to purse pro-energy transition trade measures, exceptions for trade restrictive/distortive pro-energy transition measures should be considered only as one of the various ways in which trade law can contribute to the energy transition.
Making international trade law work for but not against the energy transition requires going beyond the current exception-based approach to tackling environmental issues and introducing new provisions that enjoin countries to take pro-energy transition trade measures (e.g. liberalize trade in renewable energy technologies) or not to take anti-energy transition trade measures (e.g. subsidization of fossil fuels). This, in turn, requires reforming international trade rules in such a way that they not only allow but also require the adoption of pro-energy transition trade measures and actively discourage (if not ban) the adoption of anti-energy transition trade measures. WTO law provides different avenues for such legal reform from negotiating entirely new rules to authoritative interpretation and amendment of existing ones. However, the political paralysis in the multilateral trading system has made legal reform under any of these traditional routes increasingly difficult to achieve. This apparent difficulty calls for consideration of alternative ways of aligning international trade rules with the sustainable energy transition. The most prominent of these alternative ways include judicial interpretation, plurilateralism and informal regulation.
Judicial interpretation
Much of the legal developments around trade and environment in the multilateral trading system over the last few decades came from the judicial front. In fact, it was the GATT-era tuna/dolphin disputes that fuelled much of the trade and environment debate. Since then, WTO adjudicators have had to interpret and apply trade rules to unilateral trade-related environmental measures on numerous occasions. Their rulings in classic trade and environment cases such as US-Shrimp have shaped the debate and created much needed green policy space for governments to pursue environmental policies. In Canada – Renewable Energy/FIT, for example, the Appellate Body performed what has been described in the literature as ‘judicial acrobatics’ to create a non-existing green policy space under the Agreement on Subsidies and Countervailing Measures. This and several other instances illustrate the willingness of the adjudicators and the potential of judicial interpretation to align international trade rules with the energy transition. However, there are several issues that undermine the potential of judicial interpretation to bring about meaningful legal reform in the multilateral trading system.
First, adjudicators get to shape international trade rules only insofar as there are trade disputes over energy transition measures. Factors such as the emergence of climate litigation as a strategy to tackling climate change, growing geopolitical tensions and the associated energy security concerns, and competition for markets and technological leadership suggest that energy-related trade disputes are likely to rise. However, the nature of these disputes determines the influence of the judiciary. For example, virtually all the renewable energy related disputes at the WTO were against local content requirements attached to renewable energy support schemes. WTO Members are less likely to file a dispute against another WTO Member for its failure to adopt (adequate) pro-energy transition trade measures or for adopting anti- energy transition trade measures.
Second, no matter how environmentally friendly or conscious the adjudicators are, they will still be interpreting trade rules designed for the fossil fuel era with trade liberalization (not energy transition) in mind. In other words, adjudicators can only do as much under the current legal framework. The most the judiciary can do is interpret exiting exceptions broadly enough to allow government take trade-restrictive pro-energy transition measures. Third, and most importantly, the judiciary itself is currently undergoing an existential crisis with a dysfunctional Appellate Body. The criticisms that brought about the demise of the Appellate Body suggest that even if the Appellate Body were to resurrect from the dead it is less likely to return with the same enthusiasm and mandate that allows it to make international trade rules energy transition friendly.
Plurilateralism
Plurilateral trade negotiations have recently emerged as popular escape routes from the deadlock in multilateral trade negotiations. Plurilaterals are trade negotiations among a subset of (like-minded) WTO members on a particular sector or issue. They promise to facilitate negotiations by allowing some willing countries ‘to go ahead while others are unready or reluctant’. This aspect makes them particularly suited to tackling energy transition-related issues given the divergent views among countries over the nature, pace, impact and many other aspects of the transition.
However, plurilateral initiatives are currently facing serious resistance from certain WTO Members. India and South Africa are challenging the legality and legitimacy of such initiatives. At the heart of their criticism lies the claim that plurilaterals run counter to the principle of multilateralism that underpins the WTO and allow a self-selected group of countries to shape and modify international trade rules. They argue that negotiating plurilaterals within the auspices of the WTO and integrating their outcomes into its legal framework requires the consensus of the WTO membership. However, the difficulty of achieving consensus is the very reason that forced the resort to plurilaterals in the first place. Discussions on energy transition policy measures such as fossil fuel subsidy reform in the multilateral trading system underscore the difficulty of reaching consensus on energy transition issues. Given the urgency of climate change, plurilaterals offer the most viable route to accelerating the energy transition through trade. However, it is equally important to ensure that plurilaterals are transparent and inclusive enough to allow the representation of different interests and perspectives.
Informal regulation
Countries are also increasingly resorting to informal mechanisms to address trade and environment issues in the multilateral trading system. Much of the recent efforts to tackle fossil fuel subsidies, for example, depart from the traditional approaches of formally binding rules (outcome informality) and dispute settlement system (process informality). Informal grouping of countries such as the Friends of Fossil Fuel Subsidy Reform (FFFSR), the Friends of Sustainable Trade (FAST) and the Trade and Environmental Sustainability Structured Discussions (TESSD) are increasingly relying on informal mechanisms such as policy dialogues and experience sharing, peer reviews and non-binding agreements to address complex trade and environment issues. These informal mechanisms may not guarantee legal reform on their own, but they are crucial in raising the profile of energy transition issues within the multilateral trading system and help lay the groundwork for legal reform by building the necessary consensus. The launch of the negotiations on the Agreement on Climate Change, Trade and Sustainability (ACCTS) to introduce binding rules on various trade and environment issues that have been the subject of various informal initiatives illustrates both the limitations and prospects of informal regulation in aligning international trade rules with the energy transition.
Concluding remarks
The three options considered above for aligning international trade rules with the energy transition are fraught with pitfalls that undermine their effectiveness. Their limitations illustrate no single approach will turn international trade rules from foes to friends of the energy transition. Making international trade law work for the transition requires a careful and comprehensive approach that takes advantage of all available routes and mechanisms to reforming international trade law.