Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/234455
Authors: 
Ismer, Roland
van Asselt, Harro
Haverkamp, Jennifer
Mehling, Michael
Neuhoff, Karsten
Pirlot, Alice
Year of Publication: 
2021
Series/Report no.: 
DIW Discussion Papers No. 1948
Abstract: 
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.
Subjects: 
WTO
ASCM
Carbon Pricing
Free allowance allocation
Climate Contribution
CarbonContracts for Difference
JEL: 
K32
F13
Q54
Q56
Document Type: 
Working Paper

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