Affrontement Chine - Etats-Unis sur le financement des énergies renouvelables à l'OMC (IDDRI)

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CLIMATE N°02/11 MARCH 2011

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IDDRI

Emmanuel Guérin, Joseph Schiavo (IDDRI)

China, the US, and the WTO Chinese renewable energy and technology policies are under the spotlight. TheUnited States Trade Representative accused China of violating WTO rules, and formally filed a complaintwith the WTO on 22 December 2010, contesting a spe-cific subsidy to wind power manufacturing. The UnitedStates has requested dispute settlement consultationswith China, and if these consultations fail, a DisputeSettlement Body (DSB) will be formed to resolve the dis-pute. The purpose of this paper is not, though, to guesswhat the findings and conclusions of the DSB will bebefore it submits its final report, nor is it to say whatthese should be.

Balancing push and pull policiesThe balance between pull(supporting the production of electricity through renew-

able energy sources) and push (supporting the produc-tion of corresponding technologies) policies, both within

Chinese renewable energyand technology policies:Legal compatibility with WTO rules & Economic interactions withother countries’ climate and industrial policies

H I G H L I G H T S

and across countries, is of paramount importance to cre-ate the necessary conditions for renewable energy sup-port to really contribute to the global effort to reduceGHG emissions.

China, France, and photovoltaic The case of photovoltaicin France is a good example of what not to do. Franceput in place high guaranteed purchase prices for photo-voltaic electricity, but did not implement strong enoughpolicies to create and support the French photovoltaicindustry. The results for this lack of balance in betweenpull and push policies are straightforward. It created abig trade deficit of 800 millions of euros in 2009, whichamounts to 2% of the overall French trade deficit.


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This article reflects the views of the authorsonl. In putting this document online, IDDRI’saim is to disseminate works that it believesto be of interest to inform the debate.

For an questions, please contact theauthors:[email protected] [email protected] rights reserved

Extracts of this paper are also available in theVolume 11, Number 5 of the ICTSD (InternationalCentre for Trade and Sustainable Development,Switzerland) Bridges Trade BioRes :http://ictsd.org/news/biores/



Emmanuel Guérin (IDDRI) [email protected] Schiavo (IDDRI) [email protected]

Chinese renewable energ and technolog policies:

Legal compatibilit with WTO rules & Economic interactionswith other countries’ climate and industrial policies

Acknowledgements: The authors would like to thank the following for ideas and comments: Laurence Tubiana,Michel Colombier, Matthieu Wemaere, Céline Hiroux, Xin Wang, Tancrède Voituriez (IDDRI), François Dassa, Suan

Zhou (EDF), John Romankiewicz (US Department of State), Marie Wilke (ICTSD).

Introduction 5

1. Renewable energy and technology policies within the framework of the WTO 6

1.1. The technolog lifeccle and government renewable energ support policies 61.2. Subsidies and the WTO 7

2. Chinese renewable energy and technology policies and the United Steel Worker complaint 8

2.1. Overview of Chinese Energ Polic 82.2. The United Steelworkers Union complaint 10

3. Chinese renewable energy and technology policies:

economic interaction with other countries’ climate and industrial policies 12

Conclusion 14

References 15



ANALySES 01/2011 5

Chinese renewable energ and technolog policies: Legal compatibilit with WTO rules & Economic interactions with other countries’ climate and industrial policies

IDDRI

Introduction

Chinese renewable energy and technology poli-cies are under the spotlight,1 and opinions onthese policies differ. The United States TradeRepresentative accused China of violatingWTO rules, and formally filed a complaint withthe WTO on 22 December 2010, contesting aspecific subsidy to wind power manufacturing,provided by the Special Fund for Wind PowerManufacturing. Such policies are praised by others and used as an example to follow – inEurope in particular, many stress upon theimplications of the Chinese twelfth five-yearplan for the global race towards low carbontechnology competitiveness.

The United States has requested dispute settle-ment consultations with China, and if theseconsultations fail, a Dispute Settlement Body (DSB) will be formed to resolve the dispute.2 Ultimately, the DSB will decide whether or notthe Special Fund for Wind Power Manufac-turing violates WTO rules in that it providesa prohibited subsidy to Chinese wind powermanufacturers. The purpose of this paper isnot to guess what the findings and conclusionsof the DSB will be before it submits its final

report. It is even less to say what these shouldbe. The value of this paper is elsewhere.

Firstly, we will show where and how renew-able energy and technology policies fit withinthe WTO framework. Looking at renewablepolicies is something relatively new for theWTO. There are other cases – Japan lodged acase against Canada over conditions on feed-in-tariffs for renewable energy in the province

1. Even if empirical evidence is ver difficult to gather, as informa-tion and data are not alwas made publicl available.

2. Dispute settlements usuall take less than one ear.

of Ontario3 – but they are specific and do notcover the whole spectrum of renewable energy and technology policies. By doing so, we aim atdefining a general framework to help identify when and how a specific support policy risksviolating WTO rules.

Secondly, we will closely examine both thecontent of the Chinese renewable supportschemes and the content of the United Steel-workers Union (USW) petition. Under theprovisions of Section 301 of the Trade Act of 1974, the USW submitted to the US TradeRepresentative a petition contesting thelegality of several Chinese energy policies. TheUS Trade Representative chose to bring only

one case – the Special Fund for Wind PowerManufacturing – to the DSB. We will examineon which ground these policies where claimedto be violating WTO rules. Again, the purposeof this section is not to determine whether ornot these policies are violating WTO rules.This would be both useless – these cases havenot been brought to the DSB – and impossible– sufficient data for such a query is not avail-able. But we aim to explain on which groundfuture decisions by the DSB might be made.

Thirdly, and most importantly, we will step backfrom the legal examination of Chinese renew-able energy policies and look at them withinthe broader perspective of global climate andindustrial policies. Indeed, it would clearly beunacceptable if one country were proved tobenefit economically at the expenses of othersfrom industrial policies that violate WTOrules. But it would similarly be unacceptableif current WTO rules prevented the kind of government intervention needed to efficiently

3. The DSB did not et submit its findings and conclusions. It willmake a decision before the end of 2011.



ANALySES 01/2011 7


IDDRI

simple: the objective of pull policies is to facili-tate the production of electricity by renewableenergy sources; push policies aim to supportthe production of corresponding technologies

(photovoltaic panels, wind mills…)

As a technology matures, governmentsupport should transition from supply todemand-focused, that is, it should provideless support for technology development andmanufacturing infrastructure and concen-trate efforts on uptake and deployment.4 Yetthe distinction between mature and imma-ture technologies is far from discrete. Forthis reason, any renewable energy devel-opment policy should consist of a mix of

instruments that are designed to create asmooth transition from heavily subsidized,infant technologies, to mature technolo-gies bolstered by competitive, demand-sideincentives. Figure 1 shows the optimal appli-cation of support policies as they correspondto technology maturity.

4. J. Lewis and R.H. Wiser, “Fostering a renewable energ technol-og industr : comparison of wind industr polic support mecha-nisms,” Energy Policy, no. 35 (2007); R. Hass et al., “Promotingelectricit from renewable energ sources – lessons learned fromthe EU, U.S. and Japan.”; Céline Hiroux, op. cit.

1.2. Subsidies and the WTO

Technology-push policies are at the greatest riskof conflict with WTO rules, most specifically

subsidies, which are defined in the Agreement on Subsidies and Countervailing Measures .

To be considered a subsidy, a policy mustmeet several conditions. First, the policy mustinclude some form of financial contribution by a government or its agents (Article 1 of theASCM). These contributions, which mustconfer a benefit , can be a direct transfer of funds, non-collected, foregone, or reduced taxes, goods orservices in excess of basic public infrastruc-tures, or funds channeled through a private

entity. The second condition for a policy to beconsidered a subsidy is that it must be specific ,meaning that it must confer benefit on a certainenterprise, group of enterprises, industry, orspecific territory (Article 2).5

Subsidies that meet neither of these criteriacan be classified in two categories: prohibited

5. World Trade Organization, Agreement on Subsidies and Coun-

tervailing Measures , http://www.wto.org/english/docs_e/legal_e/24-scm_01_e.htm and World Trade Organization,“Anti-dumping, subsidies, safeguards: contingencies, etc,”http://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm8_e.htm#subsidies

Figure 2. Is a polic a subsid? The logic of the ASCM*

*Source: Authors’ own analsis of the Agreement on Subsidies and Countervailing Measures .

Is there a benefit conferred?(Art. 1)

Is it specific? (2)

Prohibited subsid

Not illegal

Prohibited subsid

Not illegal

Actionable subsid

Not actionable

Contingent on exportperformance? (3.1a)

Contingent on domesticproduct usage? (3.1b)

Adverse effects or seriousprejudice caused? (5, 6)

Not a subsid

yES

NO

NO

NO

yES

yES

NO

yES

NO

yES

NO




8 ANALySES 01/20118 IDDRI

and actionable .6 Prohibited subsides establishexport targets for recipients of the subsidy oroblige the use of domestic goods instead of foreign goods (Article 3). They are explicitly intended to confer a competitive advantageupon an enterprise, group of enterprise, orindustry in international markets. Actionablesubsides are specific subsidies that do notnecessarily subsidize exports, but otherwisecause injury to an importing country’s domesticindustry, a rival exporting industry in anothercountry, or exporters abroad competing in the

subsidizing country.7

However, complainingcountries may only initiate countermeasureswhen adverse effects are determined to existas a result of the subsidy (Article 5). Adverseeffects are identified as injury to a domesticindustry or group of enterprises, nullificationof conditions of the GATT 1994, or serious prejudice to the interests of another country. Many subsidies are actually perfectly legal; disputes

6. A third categor, non-actionable subsidies, originall existed, butexpired without renewal on 31 December 1999.

7. World Trade Organization, “Anti-dumping, subsidies, safeguards:contingencies, etc.” op. cit.

only arise when it can be empirically shownthat adverse effects and serious prejudice arecaused in the marketplace.

2. Chinese renewable energyand technology policies and theUnited Steel Worker complaint

2.1. Overview of Chinese Energy Policy

In recent years, China has shown a strong

willingness to support the development anddeployment of renewable energy, with exten-sive policies on a large scale. Of course, renew-able energy is just one part of China’s envi-ronmental and climactic policy. China hasset a goal to reduce energy intensity (energy consumed per unit of GDP) by 31 percent from2010 to 2020.8

8. U.S. Energ Information Administration, “China Energ Data,”U.S. Energ Information Administration, November 2010. http://www.eia.doe.gov/cabs/China/Background.html; ChinaFAQs,“Timeline of China’s energ efficienc policies,” World ResourcesInstitute, 2009.

Figure 3. General compatibilit of energ support policies with WTO rules*

SUPPORT POLICY BENEFIT CONFERRED? CONDITIONS FOR ILLEGALITY

Demand-pull instruments

Tax incentives for end-users

No, onl consumers receive the incentive. Local content requirements

Tradable greencertificates, quotas

No, the government onl demands a certain level ofrenewable energ production, but does not necessaril

specif which form of energ needs to produce it.

Discrimination between imported and domesticelectricit

CO2 tax No, all carbon-emitting producers are subject to the tax.Discrimination between tax treatment of imported

and domestic products

Cap-and-trade sstems Conditional on the allocation mechanism.

Free allocation: permit allowances that do notestablish the same criteria for domestic and

foreign emitters

Auction allocation: all emitters have access tothe market

Feed-in-tariffs,

Feed-in-premiums

yes. Energ producers receive financial paments as

electricit is produced.

Eligibilit criteria for producers is discriminator

on a basis of national originTechnology-push instruments

Special financing, loanguarantees

yes. Investors gain access to funding that the wouldnot otherwise have. Loan interest subsidies are a direct

financial contribution.

Eligibilit criteria for recipients discriminatesbetween “like” products, subsidies are specific

Producer tax incentives yes. Financial contribution to producers.Eligibilit criteria for recipients discriminates

between “like” products, subsidies are specific

Direct investment Yes. Financial contribution to investors.Eligibilit criteria for recipients discriminates

between “like” products, subsidies are specific

Research andDevelopment funding

Yes. R&D projects receive funding support from thegovernment.

Generall not illegal, “Green box” subsid (in thecase of agricultural R&D)

*Source: Authors’ own analsis.



ANALySES 01/2011 9


IDDRI

Figure 4. Chinese Energ Polic*R&D GRANTS, INDIRECT

INVESTMENTDIRECT INVESTMENT SPECIAL FINANCING PRICE SETTING QUOTAS AND

REGULATIONTAX INCENTIVES

ALL TECHNOLOGIES

Renewable Energ Law:Renewable Energ

Special DevelopmentFund, Tenth Five-year

Plan

Renewable Energ Law:Renewable EnergDevelopment Fund,

Tentative ManagementMethod for RenewableEnerg Development

Special Fund,investments in grid

expansion and access

Special financingfrom: AgriculturalDevelopment Bankof China, Export-Import Bank of

China, AgriculturalBank of China,

China DevelopmentBank, Bank of China,China ConstructionBank, Industrial andCommercial Bank of

China, DORCU

Price setting occurson a technolog-b-

technolog basis, as perthe Renewable Energ

Law.

Renewable Energ Lawsets targets for installed

capacit in 2010 and2020.

Reduced VAT andcorporate income taxesfor renewable energ

projects.

Government investmentin SinoHdro, Export-

import bank financingand export credits

Export-import bank

financing and exportcredits. (see above).



(see above).

WIND POWER


Special DevelopmentFund, 1.5 MW wind

turbine developmentprogram.

Tentative ManagementMethod for

Renewable EnergDevelopment SpecialFund, Management

Regulations on SpecialFund for Wind Power

Manufacturing Sectorin China

Ride the Wind Program.Feed-in-tariffs and

tendering.



50 percent VAT reduction.

BIOMASS/BIOFUEL

Renewable Energ Law:

Renewable EnergSpecial DevelopmentFund.

Renewable Energ Law:

Renewable EnergSpecial DevelopmentFund.

(see above).

«yardstick» feed-in-tariffs set accordingto desulfurized coal

electricit prices,subsid of 0.25 uanawarded for projectsmeeting efficienc

requirements

Renewable Energ Law

sets targets for installedcapacit in 2010 and2020.

(see above).

SOLAR PV Renewable Energ Law:

Renewable EnergSpecial Development

Fund.

Capacit-basedsubsidies, Golden Sun

program.(see above).

Subsidies offered bcapacit, some high

enough to cover half thecost of purchasing and

installing.



(see above).

S

OLAR THERMAL


Special DevelopmentFund.



(see above).Prices set on a per-project basis b the

State Council.



(see above).

GEOTHERMAL






State Council.



(see above).

TIDAL






State Council.



(see above).

* Sources: Baker & McKenzie 2009, Crachilov et al. 2009, Foster et al. 2008, National Renewable Energy Laboratory 2004, Price et al. 2008, Qiang 2010, Tan et al. 2010, United Steelworkers Union2010, Wanli 2009, Zhou et al. 2010.




1 0 ANALySES 01/20111 0 IDDRI

The selection of policies presented in thispaper is by no means an exhaustive list;the chosen policies instead present a cross-section of Chinese renewable energy policy.Subsidies to coal-fired generation are alsoincluded to put subsides to renewableenergy in perspective. Figure 3 presentsthese policies.

2.2. The United Steelworkers Union complaint

The United States Trade Representative begana formal investigation of Chinese energy poli-cies following the submission of a Section 301petition by the United Steelworkers Union(USW). The policies discussed in this paperare not an exhaustive list of those listed in theUSW petition, but a cross-section of majorChinese policies chosen to illustrate the argu-ments in the petition.

The complaints can be divided into several

categories: policies that allegedly violate localcontent requirement bans (ASCM 3.1(b),3.2), policies that allegedly subsidize exports(ASCM 3.1(a), 3.2), policies that are suppos-edly not protected by the green box (ASCM 8),and actionable subsidies that are supposedly causing serious prejudice in the internationalmarket (ASCM 1, 2).

Again, without trying to determine if Chinesepolicies actually violate these rules, we willexplain what would need to be proved by the DSB in these cases or in cases similar to

these.

Figure 5. Overview of USW Complaints*COMPLAINT WTO REFERENCE MAIN POLICIES IDENTIFIED

Local content requirements ASCM 3.1 (b), 3.2 Ride the Wind Program, Special Fund for Wind PowerManufacturing

Export subsidies ASCM 3.1 (a), 3.2 Export Product Research and Development Fund, Exportcredit from China Export Import Bank, Export guarantees and

insurance from Sinosure

Improper justification as green box R&Dsubsid

ASCM 8 Special Fund for Wind Power Manufacturing, Export ProductResearch and Development Fund

Actionable subsidies (specific subsidies thatcause serious prejudice)

ASCM 1, 2 Renewable Energ Law, Eleventh Five-year Plan, NationalMedium- and Long-Term Program for Science and Technolog

Development (2006-2020), Medium and Long-TermDevelopment Plan for Renewable Energ in China (2007),

Eleventh Five-year Plan for Renewable Energ (2008), InterimMeasures of the Ministr of Finance for the Administration ofthe Special Fund for the Development of Renewable Energ,

United Steelworkers Union, “Petition for relief under section 301 of the Trade Act of 1975, as Amended: China’s Policies Affecting Trade and Investment in Green

Technolog”, 2010.

Local content requirements:

China announced the end of local contentrequirements in all wind power subsidies inOctober 2009. The Ride the Wind Programand the Special Fund for Wind Power Manu-facturing both confer a benefit (loan interestsubsidies and special financing) and thus may be considered subsidies. Yet in the absence of local content requirements, they are not neces-sarily illegal.

Despite the October 2009 agreement, the USTrade Representative assailed the presence of local content requirements in the Special Fundfor Wind Power Manufacturing. To be illegal, itmust be shown that China’s announcement of the end of local content requirements did notmean the end of local content requirements inthe implementation of the policy. This couldbe demonstrated by the DSB in an empiricalexamination of the recipients of funding fromthis policy.

Prohibited subsidies:

Prohibited subsidies, namely those that violateArticle 3 of the ASCM, may be deemed illegalif this policy is contingent on export perform-ance or favors local products over foreignproducts.

Export subsidies: Export Product Researchand Development Fund, China Export ImportBank’s export credit policy, and export guaran-tees and insurance from Sinosure were citedby the USW as policies that are contingent

on export performance, which would qualify



ANALySES 01/2011 1 1


IDDRI

them as illegal according to ASCM Article3.1(a).

The Export Product Research and Develop-ment Fund subsidizes technologies that aredeemed by the government to be an importantexport product (renewable energy technolo-gies are among these technologies). However,the Chinese government confirmed to the U.S.Trade Representative that this policy has beenterminated, which makes it irrelevant in aWTO dispute.

The USW also alleged that the loan termsoffered by the China Export Import Bank aregenerally much more favorable than thoseof comparable institutions in other countries(interest rates are lower and repayment sched-ules are extended). The USW cited this obser-vation with what it refers to as “second-handreports,” which would clearly require moresubstantiation before the WTO.

Sinosure’s activities in the area of export guar-antees and insurance also came under firefrom the USW as a prohibited export subsidy.The USW held that the premiums charged

by Sinosure for these insurance products arebelow a level that would be adequate or prof-itable for the risk of the ventures they under-write, implying that the Chinese governmentis assuming these losses (Sinosure was estab-lished with public capital).9 Contrary to thelack of data available for the China ExportImport Bank, the USW cited an agreementbetween Sinosure and LDK Solar Co., Ltd. asan example of the specificity of these subsidiesto export products, namely renewable energy technologies.

Green box and R&D subsidies: The USWalso attacked certain policies that it foundwere improperly justified as an exempt “greenbox” research and development subsidy underArticle 8 of the ASCM. The Special Fund forWind Power Manufacturing contains domesticcontent requirements and does not explicitly state that the subsidy is purely for certainresearch and development costs, which would

9. The USW refers to the WTO Appellate Bod’s decision in US-

Upland Cotton , in which these insurance products were deemedexport subsidies.

in theory disqualify it from Article 8 protec-tion.10 However, the lack of specific language

in the policy does not necessarily violatethese conditions; the DSB would need to findproof showing that these regulations are notrespected or empirically show that the subsidy has been applied illegally.

Actionable subsidies:

For actionable subsidies, adverse effects andserious prejudice must be shown empirically,that is, the negative effects in the internationalmarketplace, such as a fall in market share orimpediment of exports by a third party, mustbe demonstrated quantitatively. Articles 5 and6 of the ASCM define the “adverse effects” and“serious prejudice” that predicate a subsidy as“actionable.”

Wind power support policies were citedas causing serious prejudice toward theUnited States, and the USW presented statis-tics showing a sharp drop-off in imports of U.S. wind turbine sets in 2008, when many Chinese support polices came into effect. Thereport also referenced European imports of

wind turbine sets, showing a rapid decreasein American turbine imports, replaced by asharp increase of Chinese imports of the sameproducts in the same period mentioned above.Furthermore, the USW claimed that Chinesesubsidies distort international market share,citing prices of wind turbine sets, where theChinese products are significantly less expen-sive than comparable American products.

Figure 6. Average Unit Value of European Imports ofTowers and Lattice Masts (Euros/Ton)11

2006 2007 2008 2009US 2373 1686 1964 3636

China 1049 1320 1270 2277

Along with these data, the USW arguedthat increasing European demand justifies

10. ASCM Article 8.2(a) states that a research and development sub-sid is non-actionable if “the assistance covers not more than 75per cent of the costs of industrial research or 50 per cent of thecosts of pre-competitive development activit.” Also stipulated inArticle 8 are specific costs for which the subsid can be applied,such as personnel and equipment.

11. United Steelworkers Union, op. cit.: 191.





concerns that Chinese subsidies have alteredmarket share; imports of American turbine

sets would be expected to rise, ceteris paribus ,given increasing demand in the internationalmarketplace. The USW used a similar argu-ment to discuss the effects of Chinese solarsubsidies.

While these trends would seem to suggestserious prejudice in the marketplace, thislogic is somewhat deterministic and is lackingeconometric evidence attesting the validity thehypothesis. Technology learning and fallinglabor costs can also explain this decline inprices.

3. Chinese renewable energyand technology policies: economicinteraction with other countries’climate and industrial policies

The legal examination of Chinese renewableenergy policies is important not only becauseit partially answers the question raised by theUS to the DSB, but also because it would beunacceptable if one country were proved to

benefit economically at the expenses of othersfrom industrial policies that violate WTO rules.Nevertheless, it is essential to take a step backand look at these policies within the broaderperspective of global policies designed to tackleclimate change. Indeed, it would similarly beunacceptable if current WTO rules preventedthe kind of government intervention neededto efficiently fight against climate change,considering the need for urgent action.

Since renewable energy public support policies

contribute to the global effort to tackle climatechange, it could be argued that any kind of renewable energy support policy confers posi-tive externalities globally. Yet this argumentis short sighted. Under certain circumstances,a specific way of supporting renewable ener-gies in one country could actually make itmore difficult to raise the level of ambition of climate policies in another.

The balance between pull (supporting theproduction of electricity through renewableenergy sources) and push (supporting the

production of corresponding technologies)

policies, both within and across countries, is of paramount importance to create the necessary

conditions for renewable energy support toreally contribute to the global effort to reduceGHG emissions.

The rationale for combining pull and pushpolicies for renewable energies is as follows.Renewable energy technologies are not yetmature, meaning that the price of electricity produced by using these technologies is oftenstill significantly higher than the price of elec-tricity produced by using conventional tech-nologies. In order to bring the costs of renew-able energy technologies down, the renewableenergy industry must achieve price competi-tiveness. Given the diffuse nature of thesetechnologies, progress cannot be made only by investing directly in the industry; technologiesmust be tested on the ground through smalland large demonstration projects. Lessonslearned via these demonstration projectscontribute to progress made the industry andto the development of economies of scale. Pullpolicies, such as feed-in-tariffs, therefore aimto cultivate and grow these niche markets.

Pull and push policies correspond to the publicand private rationale for supporting renew-able energies. Pull policies support the produc-tion of electricity produced by using renew-able energy sources; they therefore contributedirectly to the reduction of GHG emissions.Push policies support the production of renew-able energy technologies; they contribute indi-rectly to the reduction of GHG emissions. Butthey also confer a private benefit to the indus-tries producing these technologies.

Public and private reasoning for supportingrenewable energies need not be opposed;they need to work hand in hand. The privatebenefit conferred to industries by push poli-cies is necessary to solve the collective actionproblem of tackling climate change. In theabsence of this private benefit, no country hasan incentive to develop renewable energies: onthe contrary, it would have an incentive to waitfor others to develop renewable energies andthen adopt them.

But symmetrically, no country has an incen-

tive to implement pull policies only. Let us





IDDRI

consider an example. Imagine that country Asets the objective of having X% of the energy

it consumes produced by renewable energy sources, and that it relies mainly on feed-in-tariffs (a pull policy) to achieve this objective.Country A faces a high risk that renewabletechnologies will be imported. This risk iseven higher if country B supports its renew-able energy technology industry (throughpush policies).

This example more or less corresponds tothe situation in between the EU (country A)and China (country B), even if this is a very simplistic way of picturing a much morecomplex reality. The reality is more complexfor two main reasons:

Some countries within the EU are actively m

supporting renewable energy technologiesthrough push policies (Germany on windmills, Spain on photovoltaic panels). Butto reach the 20% renewable energy targetset by the EU, the vast majority of MemberStates (MS) are mainly relying on feed-in-tariffs.The balance between pull and push policiesm

is different in China for wind and photo-

voltaic. On wind, China actively supportswind mill technology, but also supportsthe electricity produced though wind (via afeed-in-tariff, in particular). On solar photo-voltaic, China supports aggressively theproduction of photovoltaic panels, but they are mainly exported.

The political debate within the EU on themove from 20 to 30% of emissions reduc-tion in 2020 proves that the lack of balancein between pull and push policies in between

the EU and China makes it more difficult forthe EU to increase the level of ambition of itsclimate policies. Indeed, the fact that Euro-pean renewable feed-in-tariffs encourage theimport of Chinese photovoltaic panels (andtherefore subsidizes the Chinese industry)is used by some to oppose such a move. TheIEA notes that Chinese production capacity for solar photovoltaic cells has expanded from100MW to 2GW between 2005 and 2008, with95 percent of this capacity exported in theabsence of domestic demand.12 The monetary

12. International Energ Agenc, “Technolog Roadmap: Solar

value of exports of solar photovoltaic cells fromChina to Europe doubled between 2007 and

2008.13

The negative economic impacts of thistrend are likely to be small and concentratedon a small number of utilities and industries.But this situation is politically important, andneeds to be addressed. Otherwise, a move thatwould benefit the EU as a whole would be heldhostage by political discourse.

The case of photovoltaic in France is a goodexample of what not to do. France put in placehigh guaranteed purchase prices for photo-voltaic electricity, but did not implement strongenough policies to create and support theFrench photovoltaic industry. The results forthis lack of balance in between pull and pushpolicies are straightforward. It created a bigtrade deficit of 800 millions of euros in 2009,which amounts to 2% of the overall Frenchtrade deficit. In front of this difficult situation,the French government commissioned a report(the “Charpin report”).

The main recommendations of the report arethe following: massively and rapidly (2010)decrease the guaranteed purchase prices;

design and implement (starting in 2011) a newR&D strategy and industrial policy to create andsupport the French photovoltaic industry. Thereport also emphasizes the need that supportschemes do not target the existing technologies(crystalline silicon), because Chinese productsare much more competitive (25% less expen-sive than French products on average), butfocus on new technologies (thin film).

The French government is likely to follow therecommendations from the report. The decrease

of the photovoltaic guaranteed purchase priceis unfortunate, because stop and go in policiesreduce their credibility and the confidence thatinvestors, utilities and industries must haveto engage into the transition towards a lowcarbon economy. But it is inevitable and it wasin fact foreseeable.

One should be cautious in drawing conclusionsfrom these examples. They suggest that if pull

photovoltaic energ,” OECD/IEA (2010).

13. Stokes, Bruce, “Emerging Green Technolog Poses Threat of TradeWars,” in YaleGlobal , 14 Ma 2010.





policies are not combined with push policieswithin a given country or a group of country

(such as the EU), the policy mix will not besustainable. Indeed, there will be some polit-ical pressure to shut them down, or at least notto increase them. It also therefore posits thatthere should be international coordination onhow to balance pull and push policies, lest theglobal effort to reduce GHG emissions will beweaker than what it could be.

Conclusion

It is important that the WTO ensures that thereis a level playing field in between countries and

industries. The DSB will soon make a decisionon the legality of the Special Fund for Wind

Power Manufacturing, and determine whetheror not it includes a prohibited subsidy. Moregenerally, the same rules should apply to allcountries supporting renewable energies.

But the DSB is certainly not the appropriateforum to organise the necessary internationalcooperation on how to balance, both domes-tically and globally, pull and push policies. Itneeds to stick to its task, and settle disputes.The WTO might serve this purpose, but morerealistically, this could be tackled by bilateral orregional trade agreements, balancing climateand industrial objectives. n





IDDRI

Baker & McKenzie. Report on China’s Renewable Energy

Law, APP Project REDG-06-09 . Baker & McKenzie andChinese Renewable Energy Industry Association, 2009.

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References



Coastal setback zones in the Mediterranean: A stud on Article 8-2 of the Mediterranean ICZM Protocol

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FOUNDED IN PARIS IN 2001 , the Institutefor Sustainable Development andInternational Relations (IDDRI) isborn from three assumptions: theglobal changes resulting from humanactivities are unsustainable over thelong-term; a complete transformationof development models is needed; thisis possible if coherent policies are soonimplemented at the global level to

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Chinese renewable energy

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