Chapter 6: The subsidies of emissions trading schemes
The laws of the World Trade Organization (WTO) impose requirements that relate to the use of subsidies by Members. Historically, subsidies have been used by states to protect domestic entities from competition and to maintain export levels. In some cases subsidies may be granted for legitimate policy purposes, such as environmental objectives. Despite the potential benefits of subsidies, their existence can hinder free trade, which is the rationale for the rules that limit the introduction of certain subsidies by WTO Members. Assistance measures that accompany the introduction of emissions trading schemes are designed to alleviate the economic stress caused by these schemes. In addition to economic hardship for liable entities regulators have concerns in relation to risks of carbon leakage. The assistance measures are usually closely related to emissions trading through the provision of free emissions units for particular entities. Throughout this chapter I refer to this as ‘free allocation’. Although assistance provision through free allocation appears to be current practice in nations that have introduced emissions trading schemes, within this chapter I explore where this assistance may be in contravention of the rules of the WTO. In particular, allocation of free emissions units to certain entities is linked to quantified export ratios in order to narrow the class of beneficiaries. It is this criterion that leads to the conclusion that these assistance measures are likely to be considered a type of export subsidy and therefore prohibited by the WTO rules.
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