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Renewable Energy, Subsidies, and the WTO: Where has the 'Green' Gone?

Author

Listed:
  • Patrice Bougette

    ()

  • Christophe Charlier

    () (GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis - UCA - Université Côte d'Azur - CNRS - Centre National de la Recherche Scientifique)

Abstract

Faced with the energy transition imperative, governments have to decide about public policy to promote renewable electrical energy production and to protect domestic power generation equipment industries. For example, the Canada - Renewable energy dispute is over Feed-in tariff (FIT) programs in Ontario that have a local content requirement (LCR). The EU and Japan claimed that FIT programs constitute subsidies that go against the SCM Agreement, and that the LCR is incompatible with the non-discrimination principle of the World Trade Organization (WTO). This paper investigates this issue using an international quality differentiated duopoly model in which power generation equipment producers compete on price. FIT programs including those with a LCR are compared for their impacts on trade, profits, amount of renewable electricity produced, and welfare. When 'quantities' are taken into account, the results confirm discrimination. However, introducing a difference in the quality of the power generation equipment produced on both sides of the border provides more mitigated results. Finally, the results enable discussion of the question of whether environmental protection can be put forward as a reason for subsidizing renewable energy producers in light of the SCM Agreement.

Suggested Citation

  • Patrice Bougette & Christophe Charlier, 2014. "Renewable Energy, Subsidies, and the WTO: Where has the 'Green' Gone?," Post-Print hal-01058297, HAL.
  • Handle: RePEc:hal:journl:hal-01058297
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01058297
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    Keywords

    Industrial policy; Trade policy; Renewable energy dispute; Canada; Feed-in tariffs; Subsidies; Local content requirement;

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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