“Energy Policy and the WTO”

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Pascal Lamy’s speeches

> Workshop on the role of intergovernmental agreements in energy policy  

Ladies and gentlemen,

Ambassador Rusnák, Ambassador Kuneralp,

Let me start by thanking the Energy Charter Secretariat for choosing the WTO as its venue. We are happy to be your partner in fostering dialogue on energy and all its associated trade issues. I know Ambassador Kuneralp that you were instrumental in putting this workshop together, and can only say that the WTO membership benefits from the twin hats that you wear in being both Turkey’s Ambassador to the WTO — with the task of chairing the Negotiating Group on Trade and the Environment —  as well as Chairman of the Energy Charter Conference.

Energy is an essential enabler of human wellbeing. It is therefore incumbent upon us in the international community to explore every possible avenue to maximize the benefits of international co-operation to achieve our energy policy objectives.

In a previous speech on the topic of energy and trade, my main message was that a stronger WTO rule book could lead to significant benefits for the energy sector. This message is as valid today as it was when I voiced it two years ago.

In today’s remarks, I would like to focus on the more immediate contribution that the WTO could make to ongoing deliberations about improving global energy governance. I would like to consider the multiple benefits that both the WTO and the energy policy community could derive from a more robust dialogue in the WTO on the growing interaction between trade and energy.


Energy and trade are closely linked

It is difficult to think of many areas that are as closely linked to trade as is energy. Energy serves as an essential input to the production of goods and services, and hence has an effect on countries’ comparative advantage and the composition of international trade flows. Energy powers the movement of goods and people across borders. Without energy, there is no international trade.

But the relationship between energy and trade is dual. While energy is vital for trade, trade is critically important for energy. Open, predictable and transparent trade has an important role to play in achieving the international community’s energy goals, including improved access and sustainability.

This and other energy policy goals often have political, geostrategic, social and environmental dimensions, all of which are closely interconnected, and all of which confront us with the urgent need to improve international cooperation. Although trade is only one part of the answer to achieving those goals, it can make an important contribution by enhancing access to different energy producers and technologies, and allowing energy supply to expand and to travel more readily from countries where there is an energy surplus to countries where there is excess demand.


Energy: a global issue, few global disciplines

Given the two-way relationship between energy and trade, it is paradoxical that the multilateral trading system has not done more for energy.

Several factors underlie this paradox. Some of them are permanent: deeply-rooted sovereignty and strategic concerns that cause some reluctance on the part of resource-rich countries to commit to international disciplines.

But other factors are changing. This is the case of the growing representation of big energy actors in the WTO, which could eventually raise the attention paid by the WTO to energy issues. Saudi Arabia, Russia and Ukraine have now become WTO members. Other important energy producers, including Kazakhstan, Azerbaijan, Algeria, Libya, Iran, Iraq and Sudan, are in the process of acceding.

The WTO is by no means separated from the world of energy. The purpose of the WTO, its structure and the content of some of its rules — underpinned by the longstanding principles of non-discrimination, transparency, predictability and greater market openness — are directly relevant to address many of the issues confronted by the energy sector.

Among the trade restrictions that seem particularly relevant for energy are subsidies that distort trade, certain practices by state trading enterprises, exclusion from participation in government procurement markets, transit restrictions for transporting energy, and restrictions on exports, on investment and on the movement of energy service providers. WTO disciplines address many of these issues, although not always by design, and certainly not as part of an overarching approach that takes into account multilaterally agreed energy policy objectives.

Thus, when thinking about how the WTO can most effectively contribute to the energy goals of the international community, the relevant question is not whether the existing WTO framework is relevant and applicable to trade in energy goods and services, for it clearly is.

Instead, we need to ask ourselves how the WTO’s contribution can be further improved given rapid changes in the energy policy landscape and the international community’s goals regarding energy. The questions is therefore one of coherence, along the lines of the findings of the recently released Report of the Panel on Defining the Future of Trade, which I convened last year.


The need to pursue a dialogue on trade and energy in the WTO

This second question involves exploring how existing WTO rules could be better used as part of a broader effort to improve global energy governance. I trust that today’s deliberations will start to direct us towards solid, analytical and fact-based answers to this question.

Nonetheless, we must be cognizant of the political reality that the WTO’s approach to energy will not change overnight. This reality calls for a parallel reflection on practical means in which the WTO can support, in the short and medium terms, efforts to improve global energy governance while we reach the critically important but arguably more distant goal of a holistic approach to energy in the WTO.

I will be direct: what is sorely lacking in the current WTO context is a constructive and forward-looking discussion among members on the rapidly expanding trade and energy interface. Such discussion is a pre-requisite to build up the necessary consensus on the WTO’s future role in global energy governance. In fact, the absence of such discussions is depriving the energy policy community from much needed expertise from the trade policy community on how trade fits into the evolving energy picture.

Let me briefly elaborate on these points by referring to clean energy and fossil fuel subsidies — two issues that illustrate the growing interface between trade and energy.

First, clean energy. Given the rising trajectory of world GDP and population, the International Energy Agency projects that global energy needs will increase by nearly one-third by the year 2035, mostly as a result of growing energy demand in emerging economies.

We must reconcile the fact that the world will need more energy with the incontrovertible knowledge that current patterns of energy use are harming the planet. Greater energy efficiency and clean energy will play a central role in moving the world onto a more secure and sustainable energy path.

A growing number of governments realize this and have put in place incentives to stimulate the production of energy from clean sources. These measures have been variously justified on the basis not only of environmental concerns but also of broader policy goals such as stimulating economic growth, spurring job creation and promoting export diversification.

From the perspective of future trade and the WTO, the risk is that the intertwining of green and new industrial policy objectives may increase the vulnerability of renewable energy incentives to lobbies and rent-seeking behaviour, or result in flawed design due to the lack of sufficient information by governments to achieve multiple and often vaguely defined policy objectives. This could exacerbate the possible adverse trade effects of some types of incentive measures, and undermine their environmental effectiveness.

The WTO dispute settlement system has already been seized by disputes on renewable energy. Meanwhile, a discussion on the trade-related aspects of measures to promote clean energy, which is both rooted in political reality and informal, remains almost completely absent from the WTO in spite of the existence in the organization’s institutional structure of dedicated fora for such discussions.

The WTO dispute settlement mechanism, in which WTO judges adjudicate conflict within existing WTO rules, is a critically important element of the multilateral trading system. But it cannot substitute for consensus-building, forward-looking dialogue.

Similarly, the on-going political debate on reforming fossil fuel subsidies has largely bypassed the WTO. The surge in world energy prices in recent years has drawn high-level attention to fossil fuel subsidies, including by the G-20. The link between subsidies, consumption of energy and climate change has added a new dimension to the debate. Given that WTO members have decided to tackle the issue of environmentally harmful subsidies in the fisheries sector as part of the Doha Round, the absence of this topic from the WTO radar screen can be considered as a missed opportunity.

Meanwhile, WTO members have not yet capitalized on the opportunities offered by the first ever multilateral negotiations on the environment, in particular the mandate to open trade in environmental goods and services. Many of these goods and services — such as solar panels and solar water heaters, hydropower turbines, equipment for biogas production and environmental consulting services — have a direct application to clean energy and energy efficiency. By reducing trade barriers on these goods and services, WTO members would provide each other with access at lower cost to a greater variety of clean energy technologies. Rapidly completing these efforts would have tangible benefits for development, the environment and trade.


Concluding observations

Let me conclude by reiterating that since its inception, the WTO — through its rules, its transparency apparatus, discussion committees and its enforcement mechanism — can and does contribute to global energy governance. But its contribution could be further strengthened through a more holistic approach to energy, which strikes the right balance between the needs of energy exporting and energy importing countries.

The WTO offers its members the unique forum to engage in a forward looking dialogue on the rapidly expanding interface between energy and trade. This could be useful in helping to chart a common way forward towards greater mutual supportiveness and coherence between trade and energy policy objectives. I regard such supportiveness and coherence as essential features of an efficient and effective global energy governance framework.

Thank you.

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