Is Australia’s EAP a Prohibited Export Subsidy?

Abstract

The Carbon Pollution Reduction Scheme (CPRS) is the centrepiece of Australia’s climate change policy. It requires that all major emitters of greenhouse gases (GHGs) hold a permit for every tonne of GHG that they emit each year. Although the CPRS is designed to have a broad economy-wide coverage, a particular class of emitter is given special treatment. Emitters that qualify as being ‘emissions-intensive trade-exposed’ (EITE) entities are eligible to receive free emissions permits under a component of the CPRS known as the EITE Assistance Program (EAP). The objective of this article is to examine whether the allocation of free emissions permits under the EAP is policy measure that constitutes a breach of Australia’s international obligations under the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures (hereinafter ‘SCM Agreement’) and the Kyoto Protocol to the United Nations Framework Convention on Climate Change (hereinafter ‘Kyoto Protocol’). The EAP is explained and subsequently examined in relation to Australia’s commitments under the WTO SCM Agreement to determine whether the EAP constitutes either a prohibited export or an actionable subsidy. A further question considered is whether an affirmative subsidization finding under the SCM Agreement is evidence of a breach of Article 2.1(a)(v) of the Kyoto Protocol. There is a strong likelihood that the EAP constitutes a violation of both obligations.