An Overview of International An Overview of International Mechanisms for Addressing Mechanisms for Addressing

Energy SubsidiesEnergy Subsidies

Nathalie Bernasconi-OsterwalderNathalie Bernasconi-Osterwalder

Center for International Environmental Center for International Environmental LawLaw

International International mechanisms for mechanisms for addressing energy addressing energy subsidiessubsidies Two main instrumentsTwo main instruments

– UNFCCC and Kyoto ProtocolUNFCCC and Kyoto Protocol– WTO (GATT, SCM Agreement, AoA)WTO (GATT, SCM Agreement, AoA)

Other instrumentsOther instruments– Human Rights and Climate changeHuman Rights and Climate change– International Environmental Law International Environmental Law

Principles (Polluter Pays Principle)Principles (Polluter Pays Principle)– WSSD Plan of ImplementationWSSD Plan of Implementation

Identifying climate Identifying climate change as a threat to change as a threat to human rightshuman rights Mary Robinson (former UN high commissioner for human Mary Robinson (former UN high commissioner for human

rights) on climate change and human rights:rights) on climate change and human rights:"The impact of climate change is immediately to affect human "The impact of climate change is immediately to affect human rights - the right to food, the right to safe water and education rights - the right to food, the right to safe water and education … “… “

For example: Impact of global warming on the Inuit and other vulnerable communities in the Americas – Hearing before the Inter-American Commission on Human Rights: – The rights of indigenous peoples– The right to use and enjoy property without undue interference– The rights to life, physical integrity and security– The right of peoples to enjoy the benefits of culture

For example: The Alliance of Small Island States (AOSIS) For example: The Alliance of Small Island States (AOSIS) working on a declaration that climate change threatens the working on a declaration that climate change threatens the fundamental right to a safe, secure and sustainable fundamental right to a safe, secure and sustainable environment. environment.

Climate Change and Climate Change and general Int’l Envt’l Lawgeneral Int’l Envt’l LawTrail Smelter case and the Polluter Pays PrincipleTrail Smelter case and the Polluter Pays Principle

Dispute Dispute between Canada and the United States in the 1930s regarding transboundary pollution from iron ransboundary pollution from iron and zinc smelter in Canada.and zinc smelter in Canada.

Established the "polluter pays" principle as the basis Established the "polluter pays" principle as the basis for resolving transboundary environmental disputes.for resolving transboundary environmental disputes.

"no state has the right to use or permit the use of its "no state has the right to use or permit the use of its territory in such a manner as to cause injury by fumes territory in such a manner as to cause injury by fumes in or to the territory of another or the properties or in or to the territory of another or the properties or persons therein, when the cause is of serious persons therein, when the cause is of serious consequence and the injury is established by clear consequence and the injury is established by clear and convincing evidence.“ and convincing evidence.“

WSSD Plan of WSSD Plan of Implementation Implementation III. Changing unsustainable patterns of consumption and

production

20.20. (p) Policies to reduce market distortions would promote energy systems compatible with sustainable development through the use of improved market signals and by removing market distortions, including restructuring taxation and phasing out harmful subsidies, where they exis t, to reflect their environmental impacts, with such policies taking fully into account the specific needs and conditions of developing countries, with the aim of minimizing the possible adverse impacts on their development;

(q) Take action, where appropriate, to phase out subsidies in this area that inhibit sustainable development, taking fully into account the specific conditions and different levels of development of individual countries and considering their adverse effect, particularly on developing countries;

1992 UNFCCC1992 UNFCCC

Adopted as the basis for a global response to the global problem of climate change.

192 Parties - near-universal membership. Ultimate objective of the Convention: to

stabilize greenhouse gas concentrations in the atmosphere at a level that will prevent dangerous human interference with the climate system.

UNFCCC sets an overall framework for tackling climate change The Parties to the Convention agreed to:

– Develop and periodically submit national reports containing information on the GHG emissions and describing the steps taken and plans to implement.

– Put in place national strategies to control emissions and to adapt to the impacts of climate change.

– Promote the development and use of climate-friendly technologies and the sustainable management of forests and other ecosystems.

– Apply the Principle of Common but Differentiated Responsibilities.

1997 Kyoto Protocol to 1997 Kyoto Protocol to the UNFCCCthe UNFCCC 176 Parties. 36 industrialized countries and the

European Community committed to reducing their emissions by an average of 5 percent by 2012 against 1990 levels.

Protocol allows them to meet their emission reduction commitments abroad through so-called ”market-based mechanisms”.

Six greenhouse gases covered by the Kyoto Protocol Global emissions in 2004:

1. Carbon dioxide (CO2): the consumption of energy from burning fossil fuels, deforestation: 76,7% (with 56.6% from fossil fuel use)

2. Methane (CH4): agricultural activities, energy production, waste: 14.3%

3. Nitrous oxide (N2O): mainly from agricultural activities: 7.9%

*4. Hydrofluorocarbons (HFCs): used as replacements for ozone-depleting substances

*5. Perfluorocarbons (PFCs): used as replacements for ozone-depleting substances: used as replacements for ozone-depleting substances

*6. Sulphur hexafluoride (SF6): used in some industrial processes and in electric equipment

(*1.1%) Source: UNFCCC

Kyoto Protocol: Kyoto Protocol: Emissions reduction Emissions reduction commitmentscommitments Sets emissions reduction targets

and timetables for Industrialized Countries.

Does not mandate specific policies to achieve targets.

Provides a non-exhaustive list of policies and measures.

Article 2(1)(a) Article 2(1)(a) Kyoto ProtocolKyoto Protocol1. Each Party included in Annex I, in achieving its quantified emission limitation and reduction commitments under 1. Each Party included in Annex I, in achieving its quantified emission limitation and reduction commitments under

Article 3, in order to promote sustainable development, shall: Article 3, in order to promote sustainable development, shall:

(a) (a) Implement and/or further elaborate policies and measures in accordance with its national Implement and/or further elaborate policies and measures in accordance with its national circumstances, such as:circumstances, such as:

(i) (i) Enhancement of energy efficiency in relevant sectors of the national economy; Enhancement of energy efficiency in relevant sectors of the national economy; (ii) (ii) Protection and enhancement of sinks and reservoirs of greenhouse gases not Protection and enhancement of sinks and reservoirs of greenhouse gases not

controlled by the Montreal Protocol, taking into account its commitments under controlled by the Montreal Protocol, taking into account its commitments under relevant international environmental agreements; promotion of sustainable forest relevant international environmental agreements; promotion of sustainable forest management practices, afforestation and reforestation; management practices, afforestation and reforestation;

(iii) (iii) Promotion of sustainable forms of agriculture in light of climate change considerations; Promotion of sustainable forms of agriculture in light of climate change considerations; (iv)(iv) Research on, and promotion, development and increased use of, new and renewable Research on, and promotion, development and increased use of, new and renewable

forms of energy, of carbon dioxide sequestration technologies and of advanced and forms of energy, of carbon dioxide sequestration technologies and of advanced and innovative environmentally sound technologies; innovative environmentally sound technologies;

(v)(v) Progressive reduction or phasing out of market imperfections, fiscal Progressive reduction or phasing out of market imperfections, fiscal incentives, tax and duty exemptions and subsidies in all greenhouse incentives, tax and duty exemptions and subsidies in all greenhouse gas emitting sectors that run counter to the objective of the Convention and gas emitting sectors that run counter to the objective of the Convention and application of market instruments; application of market instruments;

(vi)(vi) Encouragement of appropriate reforms in relevant sectors aimed at promoting policies Encouragement of appropriate reforms in relevant sectors aimed at promoting policies and measures which limit or reduce emissions of greenhouse gases not controlled by and measures which limit or reduce emissions of greenhouse gases not controlled by the Montreal Protocol; the Montreal Protocol;

(vii) (vii) Measures to limit and/or reduce emissions of greenhouse gases not controlled by the Measures to limit and/or reduce emissions of greenhouse gases not controlled by the Montreal Protocol in the transport sector; Montreal Protocol in the transport sector;

(viii) (viii) Limitation and/or reduction of methane emissions through recovery and use in waste Limitation and/or reduction of methane emissions through recovery and use in waste management, as well as in the production, transport and distribution of energy; …management, as well as in the production, transport and distribution of energy; …

Article 2(1)(a)(v) Article 2(1)(a)(v) Kyoto ProtocolKyoto ProtocolIn achieving reduction commitments In achieving reduction commitments

parties are to adopt or elaborate policies, parties are to adopt or elaborate policies, such as:such as:

…… (v) Progressive reduction or phasing out (v) Progressive reduction or phasing out

of market imperfections, fiscal incentives, of market imperfections, fiscal incentives, tax and duty exemptions and subsidies in tax and duty exemptions and subsidies in all greenhouse gas emitting sectors that all greenhouse gas emitting sectors that run counter to the objective of the run counter to the objective of the Convention and application of market Convention and application of market instruments … instruments …

Energy Subsidies Energy Subsidies and the WTOand the WTO WTO Subsidies Disciplines apply to all WTO Subsidies Disciplines apply to all

“subsidies”, including energy.“subsidies”, including energy. Applicable agreements are:Applicable agreements are:

– General Agreement on Tariffs and Trade General Agreement on Tariffs and Trade (GATT)(GATT)

– Agreement on Subsidies and Countervailing Agreement on Subsidies and Countervailing Measures (SCM Agreement)Measures (SCM Agreement)

Additional agreement applicable to Additional agreement applicable to biofuels:biofuels:– Agreement on Agriculture (AoA)Agreement on Agriculture (AoA)

SCM AgreementSCM Agreement

Disciplines the use of subsidiesDisciplines the use of subsidies Regulates the actions countries can take Regulates the actions countries can take

to counter the effects of subsidies. to counter the effects of subsidies. - a member can use the WTO’s dispute - a member can use the WTO’s dispute settlement procedure to seek the withdrawal settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse of the subsidy or the removal of its adverse effects; Or effects; Or - a member can launch its own investigation - a member can launch its own investigation and ultimately charge extra duty (known as and ultimately charge extra duty (known as “countervailing duty”) on subsidized imports “countervailing duty”) on subsidized imports that are found to be hurting domestic that are found to be hurting domestic producers. producers.

Definition of a subsidyDefinition of a subsidyArticle 1 of the ASCMArticle 1 of the ASCM

A subsidy exists whenever: A subsidy exists whenever: • a financial contribution is made a financial contribution is made • by a government or any public by a government or any public

body within the territory of a body within the territory of a member member

• which confers a benefit. which confers a benefit.

Specificity Specificity RequirementRequirement

(Article 1.2 and 2 SCM)(Article 1.2 and 2 SCM) Only a measure that is a “specific subsidy” Only a measure that is a “specific subsidy”

as defined in Part I of the ASCM is subject to as defined in Part I of the ASCM is subject to WTO’s subsidies disciplines and can be WTO’s subsidies disciplines and can be subject to countervailing measures. subject to countervailing measures.

– Enterprise-specificity Enterprise-specificity – Industry-specificity Industry-specificity – Regional specificity Regional specificity

Prohibited subsidies (Article 3 ASCM) are also Prohibited subsidies (Article 3 ASCM) are also deemed specific: deemed specific: – Export subsidies Export subsidies – Local content subsidies Local content subsidies

Categories of Categories of SubsidiesSubsidies

Prohibited Subsidies (Article 3 ASCM) Prohibited Subsidies (Article 3 ASCM) Actionable Subsidies: the Actionable Subsidies: the

complaining country has to show complaining country has to show that the subsidy has an adverse that the subsidy has an adverse effect on its interests. Otherwise the effect on its interests. Otherwise the subsidy is permitted. subsidy is permitted.

Actionable Subsidies:Actionable Subsidies:Three types of Three types of adverse effectsadverse effects

Injury to a domestic industry caused by Injury to a domestic industry caused by subsidized imports in the territory of the subsidized imports in the territory of the complaining member. complaining member.

Serious prejudice in the market of the Serious prejudice in the market of the subsidizing member or in a third country market.subsidizing member or in a third country market.

Nullification or impairment of benefits accruing Nullification or impairment of benefits accruing under the GATT 1994. under the GATT 1994. (Damage to a country’s benefits and (Damage to a country’s benefits and expectations from its WTO membership through expectations from its WTO membership through another country’s change in its trade regime or another country’s change in its trade regime or failure to carry out its WTO obligations.) failure to carry out its WTO obligations.)

Article 25 ASCM: Article 25 ASCM: Notification Notification Requirements Requirements Requires that Members notify any subsidy Requires that Members notify any subsidy

(as defined in the ASCM) which is (as defined in the ASCM) which is “specific.” “specific.”

Content should include: form; amounts; Content should include: form; amounts; objectives; duration; and “statistical data objectives; duration; and “statistical data permitting an assessment of the trade permitting an assessment of the trade effects of a subsidy.”effects of a subsidy.”

While Article 25 is binding, it is aimed at While Article 25 is binding, it is aimed at transparency and carries no legal effect transparency and carries no legal effect with respect to the information provided. with respect to the information provided.

We need data!We need data!

Why? Why? – Transparency!Transparency!– To monitor commitments under international To monitor commitments under international

instrumentsinstruments– As a basis for challenges under the ASCM, HRs and As a basis for challenges under the ASCM, HRs and

other processesother processes– As a basis for future negotiations on the reduction As a basis for future negotiations on the reduction

and elimination of energy subsidiesand elimination of energy subsidies Where/how should data be collected?Where/how should data be collected?

– UNFCCCUNFCCC– WTOWTO– Other?Other?

What process for What process for addressing energy addressing energy subsidies?subsidies? Existing WTO Framework Existing WTO Framework

– Is it sufficient/adequate?Is it sufficient/adequate?– Using dispute settlementUsing dispute settlement

New WTO process (like fisheries)New WTO process (like fisheries) UNFCCCUNFCCC Other?Other?