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Climate Neutral Production, Free Allocation of Allowances under Emissions Trading Systems, and the WTO: How to Secure Compatibility with the ASCM
Open accessAbstract
To reach climate neutrality, carbon emissions from the production of basic materials need to be significantly reduced. For governments’ support measures to be consistent with their World Trade Organization obligations, they need to be compatible with the WTO’s Agreement on Subsidies and Countervailing Measures (ASCM). This paper analyzes the ASCM consistency of three selected support schemes, namely: (1) free allocation under emissions trading systems such as the European Union Emissions Trading System (EU ETS) to operators of installations deemed to be at significant risk of carbon leakage; (2) a combination of a charge on carbon-intensive materials with free allocation; and (3) carbon contracts for differences (CCfDs) for operators of climate-neutral installations, in which governments pay out the incremental costs of climate neutral-production processes relative to the costs of conventional primary material production. The analysis reveals that the current system of carbon leakage protection through free allocation is vulnerable to challenges under the ASCM. By contrast, a transition to a combination of free allocation and a charge on carbon-intensive materials would implement consistent carbon-pricing and thus would very likely not amount to a subsidy under the ASCM. In a similar vein, support for climate-neutral installations through CCfDs could be designed in such a way that it confers no benefit, so that it would also not constitute a subsidy.
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The climate excise contribution would apply to both the production and import of basic materials, also as part of products, in proportion to the weight of the material multiplied by a domestic carbon price and a default emissions factor.
“This would apply to both the production and import of basic materials (also as part of products) in proportion to the weight of the material (e.g., steel) multiplied by a domestic carbon price and a default emissions factor.”
From Carbon Leakage, Consumption, and Trade (2022) · cites this paper as [114]
Section I (p. 14) proposes a charge on carbon-intensive materials produced domestically and says importers would face the same rate and conditions. It also says the charge would use a reference level for carbon intensity, with production volumes relevant to free allocation. The passage does not specify the claimed formula—material weight multiplied by a domestic carbon price and a default emissions factor—or expressly say the charge applies to materials incorporated into imported products. (LLM, conf=0.85)
Experimental — accuracy not yet measuredApplying the climate excise contribution irrespective of production process or location avoids discriminating between domestic and foreign products based on their carbon intensity and hence addresses carbon leakage while avoiding WTO concerns.
“This being applied irrespective of production process or location avoids discriminating between domestic and foreign products based on their carbon intensity and hence addresses carbon leakage while avoiding WTO concerns (113, 114) ( Figure 9 ).”
From Carbon Leakage, Consumption, and Trade (2022) · cites this paper as [114]
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Experimental — accuracy not yet measuredA recent proposal in Europe would apply a climate excise contribution to carbon-intensive products, most notably to materials.
“A recent proposal in Europe would apply a climate excise contribution to carbon-intensive products, most notably to materials.”
From Carbon Leakage, Consumption, and Trade (2022) · cites this paper as [114]
To ensure compatibility with the WTO ASCM, payments should be limited to incremental costs, the additional cost associated with the low-carbon technology.
“T o ensure compatibility with the WTO ASCM, payments should be limited to incremental costs-the additional cost associated with the low-carbon technology (114).”
From Carbon Leakage, Consumption, and Trade (2022) · cites this paper as [114]
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Research works printed but not linked: 2
- Adjustments for Carbon Taxes, PPMs, and the WTO' (2019) 41(1) University of Pennsylvania Journal of
- Law' (2003) 6(2) Journal of International Economic Law 419-458.
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Carbon Leakage, Consumption, and Trade
Grubb, M., Jordan, N. D., Hertwich, E., Neuhoff, K., Das, K., Bandyopadhyay, K. R., van Asselt, H., Sato, M., Wang, R., Pizer, W. A., et al. (2022) · Annual Review of Environment and Resources · doi:10.1146/annurev-environ-120820-053625 · Cited by 210
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Metadata
- Authors
- Ismer, R., van Asselt, H., Haverkamp, J., Mehling, M., Neuhoff, K., & Pirlot, A.
- Affiliations
- German Institute for Economic Research (DE)
- Massachusetts Institute of Technology (US)
- University of Oxford (GB)
- Corresponding author
- Neuhoff, Karsten
- Venue
- SSRN Electronic Journal
- Publisher
- Elsevier BV
- Published
- 2021
- ISSN
- 1556-5068 (ISSN-L)
- OpenAlex
- W3165720483
- Cited by
- 2
- References
- 0
- Citations by year
- 2023: 1 · 2022: 1
- Type
- posted content
- Language
- en
- Open access
- green
- doi.org
- Locations
- SSRN Electronic Journal (acceptedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- SSRN Electronic Journal (submittedVersion)
- Utrecht University Repository (Utrecht University) (submittedVersion, other-oa)
- Econstor (Econstor) (submittedVersion)
- Graduate Institute Geneva Institutional Repository (Graduate Institute of International and Development Studies) (submittedVersion)
- Topics
- Social Sciences › Political Science and International Relations › World Trade Organization Law
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Climate Change Policy and Economics
- Social Sciences › Law › EU Law and Policy Analysis
- Keywords
- emissions trading system, EU Emissions Trading System, WTO Agreement on Subsidies and Countervailing Measures, carbon leakage, carbon pricing, basic materials, trade and climate policy
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