Are WTO rules standing in the way of climate action?

The World Trade Organisation was built for a different time, one where global economic collaboration had more importance than the survival of the planet. Today, as climate challenges deepen and countries scramble to decarbonise their economies, the rulebooks of the WTO have become a tool for compromising sustainability in the pursuit of trade. In 2016, the WTO ruling came against India’s national solar program, deciding that the local content requirement violated trade rules. This forced India to alter its clean energy regulations and undermined its domestic green manufacturing efforts. The WTO’s core philosophy, i.e., free trade unencumbered by state intervention, serving the global good, is the fundamental problem. Here, WTO believes in promoting global welfare by means of reducing state intervention for trade to flow easily across borders. This causes the local policies of climate sustainability to take a back seat to trade facilitation and liberalisation. This market and economic approach made sense in 1995 when the WTO was founded in the times of economic complacency. But today, in 2025, as the world grapples with the climate catastrophe, the WTO’s strict adherence to liberal trade policies undermines the coordinated government efforts for climate change mitigation. 

The Armour of Subsidy enabled by the WTO. 

The subsidies for renewable or clean energy, which are the cornerstone for the battle against climate change when provided by the government, are considered illegal & trade-distorting by the WTO. The United States has faced several disputes over solar panel incentives, wind energy taxes, and EV subsidies. Today, China is the world's largest solar panel manufacturer and has helped reduce the global solar cost by 90%. In the initial stage, China faced several attacks from the USA and the EU due to dumping allegations against China. Both the USA and EU imposed tariffs on Chinese solar imports, alleging that the Chinese solar panel subsidies were a violation of international trade law. This creates a dilemma, as the policies that are created to fight against climate change and for scaling green technology are constrained by trade rules to stop governments from emerging as big players in climate change. 

The WTO’s policy on the Agreement on Subsidies and Countervailing Measures treats all government support with equal suspicion and fails to differentiate between government support that harms the climate and that which helps to save the environment. According to the WTO, subsidies for a coal plant and a solar farm receive equal scrutiny, despite the vast difference in their environmental impact. 

European Union’s CBAM under Attack.
The EU’s Carbon Border Adjustment Mechanism (CBAM), implemented in 2023, is under attack by the WTO’s oversight. This act imposes tariffs on imports of carbon-intensive products from countries without carbon equivalent climate policies, and prevents domestic industries from competing with high-carbon competitors. CBAM exemplifies how climate policies collide with the WTO’s orthodoxy. This policy of the EU is both economically competitive and ecologically sensible. Without adjustments at the borders, countries often shift production to countries with weak environmental regulations, achieving very little global carbon emissions reduction, and also punishing climate-conscious nations. Despite this, CBAM faces pressure from the WTO and developing nations as it affects its non-discrimination principle and creates a layer of protectionism.
WTO’s most favoured nation rule requires equal treatment to all trading nations and makes no accommodation to climate change differentiation. Under current international trade law, no country can favour trade from a climate-conscious nation over that from climate laggards. This whole fiasco led by the WTO pressures the climate leaders to choose between domestic climate ambitious policies and WTO compliance, a choice that weakens the global fight against climate change. A direct example of this is the EU’s CBAM, where it wanted to impose higher tariffs on imports from countries with weak climate policies, but under the WTO’s MFN, it couldn't legally favour any country over another.

The Fossil Fuel Exemption.
The renewable energy subsidies given by climate-conscious countries often face legal challenges from the WTO, but the fossil fuel subsidies totaling $ 7 trillion enjoy immunity from such hurdles from the WTO. It never questions these subsidies, even after their distorting effect on trade & environment. This reflects the organization’s bias towards fossil-based industries and its reluctance to address environmental externalities. Fossil subsidies are often looked at as tax breaks or infrastructure allowances and fall outside the WTO’s subsidy definition. Whereas the renewable energy subsidies are looked at as direct payments and are immediately under WTO trade scrutiny. 

This results in a tilted playing field where polluting industries receive umbrella subsidies and protection, and the greener industries face constant legal harassment. At last, this perpetuates fossil fuel domination and slows the transition that the climate fight demands.  
 

A framework for the future.
Today’s climate crisis demands a WTO framework of international trade that recognises climate action as a legitimate government objective, deserving special treatment just like national security. This framework should include exceptions for renewable subsidies and permission for carbon border adjustment, and also recognition that local content serves various environmental objectives. Additionally, it needs to reconsider the assumption that free trade causes global welfare without addressing its impact on environmental well-being.
The WTO served its purpose of trade liberalization in an era where free trade seemed undoubtedly beneficial. But that era is far from over, and the world today faces a climate crisis where trade facilitation rules prevent the government from combatingundermine climate survival. The choice of today is clear: reform the WTO for the climate age or see trade law  the planet’s chances of survival in this civilizational collapse.