Elena Cima

Caught Between WTO Rules and Climate Change: The Economic Rationale of ‘Green’ Subsidies

Given the dominant role still played by fossil fuels in our economy and the economic challenges faced by renewable energy producers, the transition to renewable energy sources will be essentially impossible without major changes in government policies and significant investment in the development of these new sources. This paper focuses on the economic rationale behind renewable energy subsidisation and aims to explore whether the economic logic behind the adoption of such policies is mirrored in the international regulation of subsidies, as intended in the WTO agreements, as well as in the interpretation of the relevant provisions provided by the WTO panels and Appellate Body. In particular, the WTO discipline of subsidies overlooks the fact that, even when an industry is a net beneficiary of government financial support, those benefits may be socially justifiable in case the industry in question is a source of positive externalities. The core issue is therefore to determine whether a particular measure distorts or rather corrects the market process, that is whether it decreases or increases the efficiency of resource allocation. Focusing on the role that economics can play both in legal interpretation and in law-making, this contribution identifies possible solutions to the current shortcomings of the WTO Subsidies Agreement.