EU, UK, WTO and green energy: a tricky mix

News reported in The Journal, Newcastle*, and elsewhere that the European Commission (EC) has challenged UK government subsidies for renewable energy, particularly offshore wind, at the World Trade Organisation (WTO) raises questions that are tricky for those who like this author supported membership of the EU. But the issue cannot be ducked.

It is especially awkward because this website has been making clear for months that it regards the green industrial revolution, from renewables to battery-powered vehicles, as the main reason for cautious optimism about levelling up the North East economy.

Now the EC has complained to the WTO that the UK’s Contracts for Difference (CfD) scheme, under which financial support is granted to green energy projects (mostly offshore wind farms) to bridge the gap between development costs and the regular market price of electricity is discriminatory because it favours local over imported content.

According to the Commission: ‘The EU considers this to be a breach of the WTO’s national treatment principle, which prohibits WTO members from discriminating against imports in favour of domestic products. Moreover, such local content criteria lead to losses in efficiency and raise prices for consumers, ultimately making the transition to a secure supply of renewable energy more difficult and costly.’

The EC says the EU has raised its concerns with the UK on several occasions before taking its complaint to the WTO, but to no avail.

According to the WTO, the EU alleges that the UK is acting inconsistently with the national treatment obligation under  the General Agreement on Tariffs and Trade (GATT) by making local content a criterion of eligibility for, and payment of, subsidies covering the difference between the cost of low carbon electricity generation and the regular market price.

There will now be a consultation period to give the parties an opportunity to discuss the matter and find a satisfactory solution. If consultations have failed to resolve the dispute after 60 days, the complainant [the EU] may request adjudication by a panel.

According to The Journal and other media, a UK government spokesperson said: ‘The UK government has accepted the EU’s request for consultations. However, we remain disappointed by the Commission’s course of action at a time when we are focused on increasing our energy security and supply of home-grown renewable energy.

‘It is particularly disappointing that the EU has chosen to initiate the dispute now, considering the level of collaboration between the UK and the EU in the face of Russia’s illegal invasion of Ukraine. The UK abides by WTO law and will rigorously contest the EU’s challenge,’

COMMENT

This is not a case of the UK falling foul of the laws of the EU, from which we sought to take back control through Brexit. It is a case of the EU arguing that the UK has breached the laws of the WTO, of which we are apparently happy to remain a member – indeed we were told during the Brexit referendum that trading on WTO terms would be a good option – and asking the WTO to enforce its own laws.  

The fact that a dispute between the UK and its European neighbours is going for adjudication to a body beyond the democratic control of the UK Parliament demonstrates that international trade requires an independent body to make a ruling. Taking back control from the European Court of Justice through Brexit has not freed the UK from all international supervision.

It is also to be born in mind that the UK too makes use of the WTO when it suits its purposes. In fact, it joined the EU, Australia and the U.S. as recently as February in taking a case against China and in defence of Lithuania to the WTO.

However, the UK government is correct to say the timing of the EU’s action is disappointing in view of the Ukraine situation. It is especially galling for regions like the North East which are pinning so much of their hopes for economic growth on the green energy sector.

Those of us looking on can only hope that the 60-day consultation period will produce a satisfactory deal, and if not that the adjudication panel will come up with a ruling that does not damage the UK’s and the North East’s growing green energy sector. But if the outcome is not a good one from the UK point of view does that mean that we should leave the WTO as well as the EU? Surely not.

*The Journal, April 2, 2022.