TWN Info Service on WTO and Trade Issues (Apr22/01)
1 April 2022
Third World Network

EU initiates dispute over UK measures on low carbon energy generation
Published in SUNS #9547 dated 1 April 2022

Geneva, 31 Mar (Kanaga Raja) – The European Union has initiated a dispute at the World Trade Organization over measures adopted by the United Kingdom that allegedly incentivise low carbon energy generation projects, mainly offshore wind, through the use of Contracts for Difference (CfD).

As an initial step, the European Union has sought consultations with the United Kingdom. The request was circulated to WTO members on 30 March.

If consultations fail to settle the dispute within 60 days, or if during the 60 days, the consulting parties jointly consider that the consultations have failed, the complaining party may request the establishment of a panel.

In its communication to the Dispute Settlement Body (WT/DS612/1), the European Union said that its request for consultations is with regard to the inclusion of United Kingdom content in the context of the allocation of CfD in low carbon energy generation.

The European Union said that the United Kingdom incentivises low carbon energy generation projects, mainly offshore wind, through the use of CfD.

CfD aim at incentivising investments in renewable energy by providing developers of projects that have high up-front costs with a predictable income that protects them from volatile high whole-scale prices, it added.

In particular, said the EU, CfD make low carbon energy generation projects commercially viable by covering the difference between the cost of low carbon electricity generation and the regular market price for electricity through the payment of a subsidy.

Three rounds of allocation of CfD have been conducted thus far in 2015, 2017 and 2019, said the EU.

The EU said the fourth round, which opened for applications on 13 December 2021 and is expected to be allocated around July or August 2022, incorporates United Kingdom local content as a criterion for the eligibility of applicants for all low carbon electricity generation projects of 300 MW or more and for the effective payment of the subsidy to successful applicants for such projects.

According to the EU communication, the measures at issue, including their adoption, maintenance, application and administration by the United Kingdom, through its actions or omissions, in law and in fact, include:

* Making United Kingdom local content a criterion for the eligibility of applicants to participate in the allocation of CfD; and

* Making the attainment of the level of United Kingdom content as committed in the applicants’ initial eligibility application a criterion for effective payment of the subsidy.

The European Union said these measures are put in place and evidenced by, and are implemented and administered through, inter alia, the following legal and other instruments, considered alone and in any combination:

* Policy paper “Offshore Wind Sector Deal – one year on”, updated 4 March 2020;

* Press release “New plans to make UK world leader in green energy”, 6 October 2020;

* “Contracts for Difference for Low Carbon Electricity Generation. Consultation on New Supply Chain Plan Questionnaire”, Department for Business, Energy & Industrial Strategy, January 2021;

* “Supply Chain Plan Guidance for projects of 300 MW or more applying for a Contract for Difference”, Department for Business, Energy & Industrial Strategy, July 2021;

* “Contract for Difference. Supply Chain Plan. Your Questions and Answers. 28 September 2021”;

* “Policy paper. Contracts for Difference”, Department for Business, Energy & Industrial Strategy, updated 13 December 2021;

* “Supply Chain Plan Questionnaire. Submission Template. Allocation Round 4”;

* “Supply Chain Plan questionnaire: submission tables”;

* “The Electricity Market Reform (General) Regulations 2014 (S.I. 2014/2013)”, as amended;

* “The Contracts for Difference (Allocation) Regulations (S.I. 2014/2011)”, as amended;

* “Industrial Strategy. Offshore Wind Sector Deal”, HM Government, 2019;

* “Methodology for Measuring the UK content of UK offshore wind farms, for UK Government, Department of Energy and Climate Change, RenewableUK and The Crown Estate”, BVG Associates, May 2015; and

* Any other instruments through which the United Kingdom implements and administers the measure at issue, including letters, circulars or other documents whereby requests are made, decisions are communicated and/or instructions are imparted; whether between United Kingdom authorities or to individual or groups of companies directly or indirectly involved in the fourth allocation round of CfD for low carbon energy generation projects, mainly offshore wind, as described above.

The measures at issue described above appear to be inconsistent with the United Kingdom’s obligations under the covered agreements, in particular Article III:4 of the GATT 1994, inasmuch as, by incentivising applicants to commit to and implement an ambitious percentage of United Kingdom content in the context of the allocation of CfD, they accord less favourable treatment to imported goods than to like domestic goods, said the EU.

The measures relating to the allocation of CfD appear to nullify or impair the benefits accruing to the European Union directly or indirectly under the covered agreements, it added.