Josephine V. Yam

A Case for Clean Subsidies

In his Harvard Business Review article entitled “The Case for Clean Subsidies”, James Bacchus argues that the rules of the World Trade Organization (WTO) should be amended to create an exemption for green energy. These type of exemptions are not new. Many years ago, exemptions that helped achieve ”new environmental requirements” were agreed upon during the Uruguay Round of trade negotiations for subsidies. Unfortunately, these exemptions expired in 2000.

Due to the proliferation of governmental subsidies for clean energy worldwide, Bacchus notes that international trade disputes over green energy have been noticeably accelerating at the WTO. This is because these type of subsidies “distort trade by lowering costs for local manufacturers, thus reducing access to local markets for foreign companies and giving local manufacturers an unfair advantage in exporting to other markets.”

Yet, because fossil fuels are so much cheaper than renewable energy and and because greenhouse gas (GHG) emissions from fossil fuels are accelerating climate change, market forces cannot be relied upon to determine the world’s future energy use. Verily, there is far more at stake than a simple price tag.

While imposing a carbon tax that puts a price on carbon could be effective, such initiative could be politically unworkable. Thus, he proposes that “the only practical political alternative for producing renewable energy competitively seems to be subsidies” because they “ease the necessary shift to low-carbon economies”. However, these subsidies cannot succeed so long as the WTO rules make them illegal under international law. Consequently, amending the WTO rules to make an exemption for green subsidies appears imperative in order to successfully address climate change.

U.S. CO2 Emissions Lowest in 2 decades

A recent New York Times article reported that energy-related CO2 emissions in the U.S. from January-March 2012 were the lowest for the first quarter of the year since 1992. The CO2 emissions from energy consumption during this period of 2012 amounted to 1.34 billion metric tons, down by nearly 8% from a year earlier.

According to the federal Energy Information Administration (EIA)’s report, CO2 emissions during the year are generally highest in the first quarter because of the strong demand for heat produced by fossil fuels, such as coal and natural gas. However, the EIA identified the confluence of three factors that contributed to this significant CO2 emissions decline:

The first factor is lower gas heating demand. This is mainly due to a mild winter when temperatures were markedly above the historical average for the season.

The second factor is reduced gasoline demand. This is mainly due to lower economic activity.

The third factor is a decline in coal-fired electricity generation. This is mainly due to utilities using less coal for electricity generation as they burned more low-priced natural gas.

The New York Times article noted that “[t]he extraction of large natural gas deposits in the Marcellus Shale has contributed to the rise of inexpensive natural gas, causing prices to decline in the last four years and making it a far cheaper option than burning coal. In 2005, coal accounted for half of all electricity generated in the country. But the embrace of natural gas, which now accounts for about 30 percent of electricity generation, has caused coal’s share to retreat to 34 percent, a 40-year low.”

However, according to the article, climate scientist Michael Mann warned that when shale gas is extracted from the ground, “fugitive methane”, a far more potent greenhouse gas than CO2, can escape into the atmosphere. He noted: “We may be reducing our CO2 emissions, but it is possible that we’re actually increasing the greenhouse gas problem with methane emissions.”