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Fiscal and Financial Policies for
Low-Carbon Economic Development
Should be Double Green
HU Tao
Policy Research Center of
Ministry of Environmental Protection, China
26 November 2010, SNAI, Shanghai
Outline
• Case of US Section 301 probe on
China’s clean energy subsidies
• Current challenge by WTO rules of fiscal
and financial policies for low carbon
economic development
• Why Fiscal and financial policy should
be double green?
2
US Section 301 probe
• Storyline
– Union of Steel Workers (USW) accusing
China’s subsidy on clean energy, mainly
wind and solar products
– USTR is investigating according to US trade
Act Section 301
– If proved true, US discusses with China or
brings it to Dispute Settlement Body (DSB)
of WTO
3
US Section 301 probe
• From UNFCCC perspective
– All parties should make efforts to reduce
GHGs to mitigate
• What US should do as Annex I country
– 8% GHGs reduction required in KY Protocol
• What China should do as non-Annex I country
– Voluntary based reductions
• What Annex I should do for non-Annex I:
– Financial support 0.7% of GDP committed in Rio
– Technology transfer committed in Rio
4
US Section 301 probe
• From UNFCCC perspective
– What China is doing for implementing its voluntary based
action plan
• Target
– 40-45% carbon intensity by 2020, 20% by 2010
– Cap for N2O by 2010
– 15% renewable in energy mix by 2020; and 10% by 2010
• Instruments
– MBIs
» Financial supports
» Self-innovation
» Taxation or trading
– Moral education
– C&C
• Results (can be MRV)
– Reducing GHGs domestically 726 million ton CO2 per year with 261
GW capacity
– Helping others reducing GHGs internationally 11.1 million ton CO2
per year by exporting equipment for hydro 3GW, solar 2.59GW, wind
36.6MW.
– It’s very clear that the more renewable subsidized, the more GHGs
reduced 5
US Section 301 probe
• From WTO perspective
– Subsidy
• Defining subsidy
– Government or public body
– Financial sources
– Enterprises
– Specificity
• Types of subsidy
– Prohibited (red box)
– Actionable subsidy (yellow box)
– Non-actionable subsidy (green box)
» Article 8 expired already in 2000
6
US Section 301 probe
• From WTO perspective
– Exceptions
• GATT XX
– For environmental protection
– For resources conservation
• Case by case
– Tuna-dolphin
– Shrimp and turtle
• Transaction costs?
• Agriculture as an exceptional sector
7
US Section 301 probe
• From WTO perspective
– What China has done
• Subsidies
– Compensations
– Financial supports
– Privilege credit and loans
– VAT waived
– Quotas, regulations etc for renewable requirements
creating high shadow price of demanded equipment
8
US Section 301 probe
• From WTO perspective
– What US has done
• Subsidies for renewable too as key part of
stimulus plan during the financial crisis
• Subsidies for agriculture that increases fertilizer
applying amount and results in more emissions
of N2O, CH4 and ammonia-nitrogen
– US$ 19 billion annually
– 513.8 million ton carbon annually, taking 7% of total
9
US Section 301 probe
• From WTO perspective
– Other cases
• Japan as complainant accusing Canada for it’s
renewable in Ontario
• US Senate’s proposal of BTA to punish China
and India high carbon goods
• US, EC’s complain in DSB on China’s raw
materials exporting, rare earth element mineral
ores exporting
• EC’s complain on China’s exported coke
• US’s proposal in APEC on non-tariff measures
(but barriers) for renewable
10
US Section 301 probe
• From other bodies’ perspective
– OECD’s Green subsidies for
• Agriculture
• Regional development
• Environment protection
– World Bank’s climate-friendly products
• List of products for WTO EGS negotiation
11
US Section 301 probe
• Conclusions from the case
– Between WTO and MEAs
• Global environmental interests required by
UNFCCC are NOT coherent with free trade
articles of WTO.
• Which rules should be followed when two sets of
international rules conflict each other?
– Within WTO
• Between the principle of free trade and the
principle of sustainable development are
unbalanced
• There are no operational details of SD principle
• Environmental issue maybe an exception which 12
is case by case by GATT XX
Current challenge by WTO rules of financial
polices for low carbon economic development
• The question is not why new coherent
rules needed but HOW
• The cases above mentioned are
challenges for WTO rule itself
13
Current challenge by WTO rules of financial
polices for low carbon economic development
• WTO has realized the potential conflicts
– Committee for Trade and Environment (CTE)
being established before Doha ministerial
meeting 2001
– Topics dealing with environmental issues
started after Doha
• DDA 31.1 dealing with the relationships between
WTO and MEAs
• DDA 31.2 MEAs observership
• DDA31.3 EGS negotiation
• DDA 32.1 Market access of environmental
requirement 14
• DDA32.3 Eco-label discussion
Current challenge by WTO rules of financial
polices for low carbon economic development
• Directions
– To normalize (at least global) environmental
exception in GATT XX, following agriculture
sector exception
– To meet our common environmental demand
as another goal of WTO besides free trade, to
let SD principle operational
– To rejuvenate Article 8 of SCM to have green
box policies
15
Why fiscal policy should be double green
• Fiscal and financial policies should be
green for low carbon economic
development
• Why low carbon is more important than
low sulfur, low nitrogen, low VOC from
the global perspective?
16
Spectrum of the environment
Scale of
environment
Indoor Outdoor Local National Regional Global
environment environment environment environment environment environment
The conventional Environment
Micro Macro
17
Spectrum of the environment
from micro to macro level
Indoor environment
Outdoor/local/national/regional environment
Global environment
– Climate change
– Ozone depletion
– Biodiversity loss
– POPs
– Hazardous wastes Trans-boundary transfer
regulated by Basal convention
– And other MEAs regulated global
environmental problems 18
Why fiscal policy should be double green
• Fiscal and financial policies should be
green generally for promoting green
economy
– To support MEAs implementation for
improving global environment
– To reduce air pollution, water, solid wastes
for conventional environmental
improvement
– To support indoor environmental
improvement for human being’s health
19
Why fiscal policy should be double green
• Fiscal and financial policies should also
be green for green box policies
– definitely not use red box policies which are
prohibited clearly by WTO
– Not use amber box policies which are not
allowed as actionable by WTO
– Better to use green box policies, which are
much safer than other two sets of policies,
although Article 8 is to be saved, such as
• R&D
• Smart location
• Global than local environmental goods and
services 20
Thank you very much!
hu.tao@vip.163.com
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