Clean energy supply security and the international trade regime: A WTO law analysis of the EU Net-Zero Industry Act

Abstract

The energy transition is bringing a fundamental change to the supply security paradigm that has long governed the organization of energy markets in the European Union (EU) and globally. The turn to clean technology manufacturing in the new supply security paradigm generates tensions with the international trade regime, as states aim to localize and diversify their clean energy supply chains through trade-restrictive measures. Energy analysts warn that these supply security strategies could increase the cost of the energy transition and delay decarbonization. Focusing on the EU Net-Zero Industry (NZI) Act, this article examines clean energy supply security under the international trade regime, and provides a framework of assessment that can more generally be applied to localization and diversification initiatives in industrialized economies. It argues that, although the international trade regime is experiencing a profound crisis, the principles governing its functioning remain relevant to guide states in the design of supply security strategies that minimize cost increases and delays of the energy transition. The analysis shows how the NZI Act aims to lower the risk of supply disruptions to avoid delays to the energy transition, but in fact could achieve exactly what it aims to avoid by increasing the cost of clean energy investments. A WTO-compatible alternative would require the EU, and import-dependent economies more generally, to limit trade restrictions to specific technology dependencies for which risks of supply disruptions and the unreliability of suppliers have been sufficiently established.