An Overview of International Mechanisms for Addressing Energy Subsidies

1. An Overview of International Mechanisms for Addressing Energy Subsidies Nathalie Bernasconi-Osterwalder Center for International Environmental Law

2. International mechanisms for addressing energy subsidies • Two main instruments • UNFCCC and Kyoto Protocol • WTO (GATT, SCM Agreement, AoA) • Other instruments • Human Rights and Climate change • International Environmental Law Principles (Polluter Pays Principle) • WSSD Plan of Implementation

3. Identifying climate change as a threat to human rights • Mary Robinson (former UN high commissioner for human rights) on climate change and human rights: "The impact of climate change is immediately to affect human 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) working on a declaration that climate change threatens the fundamental right to a safe, secure and sustainable environment.

4. Climate Change and general Int’l Envt’l Law Trail Smelter case and the Polluter Pays Principle • Dispute between Canada and the United States in the 1930s regarding transboundary pollution from iron and zinc smelter in Canada. • Established the "polluter pays" principle as the basis for resolving transboundary environmental disputes. • "no state has the right to use or permit the use of its territory in such a manner as to cause injury by fumes in or to the territory of another or the properties or persons therein, when the cause is of serious consequence and the injury is established by clear and convincing evidence.“

5. WSSD Plan of Implementation III. Changing unsustainable patterns of consumption and production 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;

6. 1992 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.

7. 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.

8. 1997 Kyoto Protocol to the 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”.

9. 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

10. Kyoto Protocol: Emissions reduction commitments • 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.

11. Article 2(1)(a) Kyoto Protocol 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: (a) Implement and/or further elaborate policies and measures in accordance with its national circumstances, such as: (i) Enhancement of energy efficiency in relevant sectors of the national economy; (ii) Protection and enhancement of sinks and reservoirs of greenhouse gases not controlled by the Montreal Protocol, taking into account its commitments under relevant international environmental agreements; promotion of sustainable forest management practices, afforestation and reforestation; (iii) Promotion of sustainable forms of agriculture in light of climate change considerations; (iv) Research on, and promotion, development and increased use of, new and renewable forms of energy, of carbon dioxide sequestration technologies and of advanced and innovative environmentally sound technologies; (v) Progressive reduction or phasing out of market imperfections, fiscal incentives, tax and duty exemptions and subsidies in all greenhouse gas emitting sectors that run counter to the objective of the Convention and application of market instruments; (vi) Encouragement of appropriate reforms in relevant sectors aimed at promoting policies and measures which limit or reduce emissions of greenhouse gases not controlled by the Montreal Protocol; (vii) Measures to limit and/or reduce emissions of greenhouse gases not controlled by the Montreal Protocol in the transport sector; (viii) 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; …

12. Article 2(1)(a)(v) Kyoto Protocol In achieving reduction commitments parties are to adopt or elaborate policies, such as: … • (v) Progressive reduction or phasing out of market imperfections, fiscal incentives, tax and duty exemptions and subsidies in all greenhouse gas emitting sectors that run counter to the objective of the Convention and application of market instruments …

13. Energy Subsidies and the WTO • WTO Subsidies Disciplines apply to all “subsidies”, including energy. • Applicable agreements are: • General Agreement on Tariffs and Trade (GATT) • Agreement on Subsidies and Countervailing Measures (SCM Agreement) • Additional agreement applicable to biofuels: • Agreement on Agriculture (AoA)

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

15. Definition of a subsidyArticle 1 of the ASCM A subsidy exists whenever: • a financial contribution is made • by a government or any public body within the territory of a member • which confers a benefit.

16. Specificity Requirement(Article 1.2 and 2 SCM) • Only a measure that is a “specific subsidy” as defined in Part I of the ASCM is subject to WTO’s subsidies disciplines and can be subject to countervailing measures. • Enterprise-specificity • Industry-specificity • Regional specificity • Prohibited subsidies (Article 3 ASCM) are also deemed specific: • Export subsidies • Local content subsidies

17. Categories of Subsidies • Prohibited Subsidies (Article 3 ASCM) • Actionable Subsidies: the complaining country has to show that the subsidy has an adverse effect on its interests. Otherwise the subsidy is permitted.

18. Actionable Subsidies:Three types of adverse effects • Injury to a domestic industry caused by subsidized imports in the territory of the complaining member. • Serious prejudice in the market of the subsidizing member or in a third country market. • Nullification or impairment of benefits accruing under the GATT 1994. (Damage to a country’s benefits and expectations from its WTO membership through another country’s change in its trade regime or failure to carry out its WTO obligations.)

19. Article 25 ASCM: Notification Requirements • Requires that Members notify any subsidy (as defined in the ASCM) which is “specific.” • Content should include: form; amounts; objectives; duration; and “statistical data permitting an assessment of the trade effects of a subsidy.” • While Article 25 is binding, it is aimed at transparency and carries no legal effect with respect to the information provided.

20. We need data! • Why? • Transparency! • To monitor commitments under international instruments • As a basis for challenges under the ASCM, HRs and other processes • As a basis for future negotiations on the reduction and elimination of energy subsidies • Where/how should data be collected? • UNFCCC • WTO • Other?

21. What process for addressing energy subsidies? • Existing WTO Framework • Is it sufficient/adequate? • Using dispute settlement • New WTO process (like fisheries) • UNFCCC • Other?