Greening the road: China’s low-carbon energy transition and international trade regulation

Abstract

AbstractThis article offers one of the first comprehensive analyses of China’s emerging practice in subsidizing the low carbon energy (LCE) transition by using the new energy vehicles (NEVs) industry as a case study. It puts forward a fresh framework for this analysis by dividing the NEV value chain into three segments: upstream, midstream, and downstream. Based on this framework, it expounds a strategic shift of China’s subsidization strategy across the NEV value chain, that is, from disproportionately subsidizing the midstream segment that produces NEVs and parts to increasingly subsidizing the upstream and downstream segments to promote research and development (R&D) and expansion of NEV infrastructure and consumption throughout the economy. It argues that this shift mainly comes out of the evolution of China’s industrial policies and economic priorities, which will continue to play a decisive role in the future restructuring and transformation of the NEVs sector. This shift may also reflect China’s intention to reduce potential trade conflicts and maximize WTO-compliance but only to the extent that doing so would not unduly constrain its capacity to pursue its economic goals and industrial policies. In addition, while the WTO rules and jurisprudence may accommodate some of these subsidies (e.g., NEV infrastructure subsidies), the relevant rules will need to be further developed to provide more policy space for other types of subsidies used worldwide (e.g., R&D subsidies). Until then, it remains debatable as to whether the WTO provides sufficient room for countries to facilitate a green recovery in the post-pandemic era.