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.