EU accuses UK of undermining efforts to tackle climate change through its plan to make domestic content a criteria for Contracts for Difference eligibility
The EU Commission has launched a challenge against Britain at the World Trade Organisation (WTO), claiming the UK’s proposals to assess levels of local content when handing out subsidies for clean energy projects could undermine the pace of the net zero transition.
The landmark WTO claim marks the first such dispute between the EU and UK since Brexit, with Westminster today immediately pledging to “rigorously contest” Brussels’ challenge.
Under its flagship Contracts for Difference (CfD) scheme, the UK has signalled plans to raise the bar on supply chain requirements on developers seeking clean power subsidy contracts from auctions from 2023. It means firms looking to develop renewables projects at 300MW capacity size or larger via the CfD scheme may have to outline how much of their supply chain for products, components and services is based in the UK.
Results of the next CfD auction round – which is backed by £285m of funding – are due to be announced in spring or earlier summer this year, and the changes proposed would potentially come into effect for the following auction in 2023, the government has said.
However, in a complaint that has long been rumoured to be lodged by the EU, Brussels claims these moves violate WTO rules by discriminating against products and components manufactured in the EU and imported to the UK. Announcing its challenge against via the WTO today, the EU said the UK’s moves risked breaching the WTO’s ‘national treatment principle’, which prohibits countries from discriminating against imports in favour of domestic products.
In a statement today, it also argued the trade practice could undermine the broader effort to address the climate crisis by increasing production costs and reducing the competitiveness of the EU’s growing green energy sector, as well as leading to efficiency losses and a higher prices for consumers.
“The criteria used by the UK government in awarding subsidies for offshore wind energy projects favour UK over imported content,” the EU’s statement claims. “This violates the WTO’s core tenet that imports must be able to compete on an equal footing with domestic products and harms EU suppliers, including many SMEs, in the green energy sector. Moreover, such practices ultimately increase costs of production and thereby risk slowing down the deployment of green energy.”
The Commission said it was taking the matter to the WTO after raising its concerns with the UK “on several occasions, but to no avail”.
If the dispute is not resolved after a formal 60-day period of consultations between the UK and EU, the EU can request that a WTO panel rule on the matter.
However, BusinessGreen understands the dispute would likely take several years to reach resolution through the WTO, which even then does not have the power to halt the CfD process.
It follows the closure earlier this month of a consultation from the UK government into a string of new measures, including an updated scoring approach for CfD project eligibility which would allocate 175 out of a total of 2,000 marks to levels of ‘UK content’. Other potential criteria could also cover issues such as carbon footprint and alignment with local economic strategies.
The UK has said the changes – which would also require developers undergo more rigorous questioning and reach a higher pass-mark on the scorecard than in previous CfD rounds – would ensure developers commit to a range of actions that increase the competitiveness of UK supply chains, drive down the cost of energy, and potentially reduce emissions in the process.
Responding to the EU’s announcement this morning, the UK government voiced its disappointment at Brussels’ course of action, and promised to “rigorously” defend itself against the claims.
“We are disappointed that the Commission has taken this course of action at a time when we are focused on increasing our energy security and supply of home-grown renewable energy,” the government said in a statement. “It is particularly disappointing that the EU has chosen to initiate the dispute now, considering the level of collaboration between the UK and the EU in the face of Russia’s illegal invasion of Ukraine.”
It added: “The UK abides by World Trade Organisation law and will rigorously contest the EU’s challenge.”
The government has consistently said that its CfD rules are fully compliant with WTO rules, and that it would any challenge claims lodged by the EU on the matter.
In a previous statement to BusinessGreen in February, the government described its CfD scheme as “a vital part of our efforts to drive down the cost of renewable energy”.
“The application process does not include a requirement for developers to use UK content, as alleged by the EU,” it said at the time. “The fourth CfD allocation round is expected to secure more renewable energy capacity than the previous three rounds and we fully expect it to continue uninterrupted regardless.”
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