A WTO climate peace clause would help protectionists, not the environment 

Last week, national security advisor Jake Sullivan gave a speech on the administration’s international economic agenda. Among other things, he explained that the “clean energy transition” is not “fully embedded” in the workings of the World Trade Organization (WTO).

Whatever this means, some will view it as an endorsement of a “climate peace clause,” a deal preventing the U.S. and the European Union (EU) from suing each other, and third countries, over trade measures that support clean tech. A climate peace clause would help protectionists, not the environment.

Calls for a climate peace clause have grown louder ever since the EU threatened to bring a WTO case against the U.S. over electric vehicle tax credits in the Inflation Reduction Act. Environmentalists fear that litigation like this will have a chilling effect on government funding for renewables, for example.

Public Citizen and its allies want “the U.S. and EU to commit to a climate peace clause to protect climate policies around the world from trade disputes.” 

The Trade Justice Education Fund and Sierra Club insist that “[w]e urgently need a climate peace clause — a moratorium on the use of trade and investment agreements to challenge countries’ climate policies.” 

Finally, the National Caucus of Environmental Legislators has called on the Biden administration to negotiate “a binding commitment among governments to refrain from using outdated trade rules to challenge other countries’ climate policies.”

The main theme that underpins these pleas is that, without a climate peace clause, the WTO will rule against government support of clean tech. As proof, Trade Justice and the Sierra Club lament that “outdated trade rules” have set up legal wins against Ontario’s renewable energy program, solar panel measures in the U.S. and India and Malaysia’s dispute with the EU over palm oil being made ineligible for biofuel subsidies to prevent deforestation.

Not one of the cases listed above supports the argument that proponents of a climate peace clause want to make. With the exception of Malaysia’s dispute with the EU, which is really about Brussels pandering to domestic rapeseed, not deforestation, all of these cases are over local content requirements and the subsidies that are contingent upon meeting them. Jobs are the coin of the realm here. Beggar-thy-neighbor spending on green tech is the problem and not the answer to climate change.

The idea of a peace clause at the WTO is not new. The Agreement on Agriculture included a “due restraint” provision, dubbed a peace clause. It aimed to prevent litigation over a few specific types of farm support for nine years. This was meant to give the U.S. and the EU time to stop their lavish farm supports, not to start subsidizing agriculture. Proponents of a climate peace clause miss this point.

The other disconnect is that proponents of a climate peace clause have no clue which technologies would be covered. For example, solar panels are just big semiconductors. Would a climate peace clause allow for unlimited spending on chips or take lithium-ion batteries and other energy storage devices? The future of these technologies lies in materials that will find applications across every sector of the economy. 

Put simply, which technologies wouldn’t be included under a climate peace clause?

None of this is to say that the WTO can’t play a key role in the fight against climate change. In fact, the institution is already doing three things that will make or break the future of clean tech. 

First, the Environmental Goods Agreement eliminates tariffs on a wide variety of green products, a deal that should be expanded, both in terms of its coverage and membership.

Second, the Agreement on Technical Barriers to Trade disciplines things like performance requirements on solar panels, and the conformity assessment procedures used to verify compliance with these regulations. The United Nations Conference on Trade and Development says that it has mapped over 1,000 climate change-related non-tariff measures, the majority of which are technical trade barriers. Most of these can result in a ban on trade in clean tech, whereas a tariff is just a tax.

Third, the Agreement on Trade-Related Aspects of Intellectual Property Rights safeguards ideas that drive innovation. Patents get a lot of attention in this regard, but trade secrets matter more for semiconductors, for example, and thus hold the key for solar panels as well. All types of intellectual property need global protection if inventors and investors are going to push the envelope in clean tech.

Protectionists have hoodwinked environmentalists with the idea of a climate peace clause. It’s a sign of the times that beggar-thy-neighbor trade policies are viewed as a solution to anything.

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service, Georgetown University, and a Global Fellow at the Wilson Center’s Wahba Institute for Strategic Competition. Follow him on Twitter @marclbusch