The Role of WTO in the Global Energetic Transition: Challenges and Opportunities to Reduce Global Warming Effects

Article By : Houssem Hamdi

Abstract

As trade and climate policies increasingly overlap, the WTO faces the challenge of balancing trade liberalization with sustainability goals. While some rules can restrict climate policies, the WTO has the potential to facilitate the global energetic transition by promoting trade in clean energy and reducing barriers to green technologies. To stay relevant, the WTO must support reforms that align global trade with climate objectives, foster cooperation, and ensure that global trade contributes to, rather than obstructs, the fight against climate change.

Introduction

On 2 January 2025, Jean-Marie Paugam, Deputy Director at the WTO, highlighted the fragility of global trade today, particularly due to fragmentation in the green economy. According to him, “The energy transition is progressing much faster in the real economy than in policies and governance frameworks. For a long time, countries perceived trade as the domain of the WTO and climate as dependent on the Paris Agreement. Many at the WTO saw “green” as a disguise for protectionism and preferred to avoid the subject. Today, climate policies, particularly decarbonization policies, have a commercial aspect. The European border carbon adjustment mechanism is a case in point. The United States, with its Inflation Reduction Act, has created a massive system of subsidies for the green economy. Industry standards also play a major role: how do you define green hydrogen? If you have 150 different standards in the world, a company will face huge transaction costs if it must be certified in every market. This reduces profitability. It won’t invest. At the very least, we need to ensure interoperability between standards. More and more of our members want to talk about the environment. We have, for example, a coalition of trade ministers for the climate, and three dialogue initiatives on plastics, fossil fuel reform and the promotion of environmental objectives through trade. Synergies between trade and environmental policies can accelerate the achievement of global objectives”.
This commentary reflects the dual challenges and opportunities facing the WTO as it marks its 30th anniversary. It underscores the pressing need for the organization to evolve and take a leading role in harmonizing trade and environmental governance. For countries like Tunisia, this evolution presents both a challenge and an opportunity to leverage WTO mechanisms in advancing their energy transition and aligning with global climate goals.
By trading solar, wind and hydro power across borders, we can provide more than enough clean energy to meet the needs of everyone on Earth. However, the uneven distribution of natural resources and seasonal fluctuations require international cooperation to harmonize supply and demand. Cross-border trade in renewable electricity can play a key role in this energy transition from fossil fuels to intermittent but abundant energy sources. Trade in renewable electricity also represents an economic opportunity for regions with comparative advantages in solar, wind or hydro power. Such trade could reduce the costs of the global energy transition to carbon neutrality by several trillion dollars, while promoting local development, particularly in developing countries.

In addition, modern infrastructures such as cross-border interconnections could improve energy security, reduce greenhouse gas emissions and stimulate investment in sectors such as green hydrogen. To fully exploit these opportunities, coherent policy frameworks and international collaboration are essential. The WTO can play a decisive role by facilitating trade in environmental goods, easing frictions linked to interconnection projects and optimizing climate services. These combined efforts would accelerate the global energy transition and promote a fair and inclusive transition. Thus, by investing in cross-border trade in renewable electricity, the world could not only meet the challenge of global warming, but also reimagine international economic relations, putting renewable resources at the heart of a more sustainable and equitable global economy.
The growing intersection between trade and climate policies raises critical questions: Can the WTO reconcile its trade liberalization objectives with the urgent need to combat climate change? How can its legal framework and initiatives support the global energy transition while addressing economic inequalities and the unique challenges faced by developing countries? To address these questions, this article aims to explore these issues by examining the challenges inherent in aligning trade and climate goals within the WTO framework. It also seeks to identify opportunities for reform and international cooperation, demonstrating how the WTO can contribute to a just and sustainable energy transition.

I- The Legal and Economic Challenges of Energy Transition in the WTO Context

The WTO finds itself at a critical juncture as global climate policies increasingly intersect with trade rules. While the organization has made efforts to integrate environmental considerations, longstanding tensions and structural limitations hinder its ability to effectively support the energy transition. This section explores the challenges posed by this dynamic.

1- Tensions between Trade and Environmental Objectives
The global consensus on the need to combat global warming is now well established, and numerous international initiatives aim to demonstrate increased determination in the face of this challenge. The WTO claims to play a role in this fight by integrating environmental considerations into its trade policies, notably through the concept of “mutual supportiveness” between trade and environment. The latter postulates that by promoting trade liberalization, it is possible to encourage the spread of green technologies while stimulating economic prosperity. However, a critical analysis of the WTO’s operations reveals profound contradictions. The organization systematically prioritizes economic growth and trade liberalization, often to the detriment of environmental objectives. Fundamental WTO principles, such as non-discrimination and freedom of trade, limit the effectiveness of state climate policies, particularly when it comes to subsidies for renewable energies or border tax adjustments to incorporate the costs of greenhouse gas (GHG) emissions. These restrictions favor commercial interests, sometimes to the detriment of the environment.

The WTO also relies on technical standards often defined by international non-governmental bodies, thus relegating state initiatives to the background. This dependence on private regulations weakens the ability of states to implement effective measures to reduce their GHG emissions, exacerbating tensions between trade competitiveness and environmental protection. Furthermore, disagreements between developed and developing countries on the liberalization of environmental goods illustrate the persistence of divergent interests within the WTO. Finally, the analysis concludes that the WTO’s legal framework, while seeking to reconcile trade and the environment, remains fundamentally incompatible with an effective fight against climate change. By prioritizing commercial competitiveness and the rights of private players, the WTO indirectly contributes to worsening the environmental crisis it claims to resolve. This observation prompts us to reflect critically on the capacity of international institutions to respond to contemporary climate challenge.

Electricity, being difficult to store in large volumes for extended periods, poses unique challenges. Supply interruptions, such as South Africa’s load-shedding protocols by Eskom, often prioritize domestic energy needs over exports. Disruptions can stem from extreme weather events, labor disputes, regulatory decisions, or geopolitical issues. For instance, export restrictions may be introduced to stabilize national grids, control prices, or address national security concerns, often impacting international trade flows. Export restrictions are governed by GATT 1994 rules, which generally prohibit such measures but allow temporary exceptions for critical shortages of essential goods. These restrictions can trigger a domino effect, leading to reduced global supply, higher prices, and potential trade retaliation. The WTO promotes transparency in trade policies, requiring members to notify such restrictions, fostering predictability and trust in cross-border electricity trade and transit.

Significant investments are required to modernize grids and expand cross-border interconnections to meet global climate pledges and achieve universal electricity access. Current investments in clean energy for developing economies are insufficient, with only a fraction allocated to grid improvements. Many projects in developing regions stall due to

financial constraints, as fewer than 40% of utilities in over 90 countries generate sufficient revenue to cover operational and debt costs. Initiatives like the Quad Partnership for Cable Connectivity and Resilience aim to enhance infrastructure reliability and connectivity, particularly in the Indo-Pacific. However, achieving net zero emissions and universal access necessitates a tripling of grid investments over the next five years and a fivefold increase to meet a Net Zero Emissions Scenario.