Back in November, I posted about a preliminary US Commerce Department decision to treat certain free allowances under the EU's Emission Trading System as a countervailable subsidy. The other shoe has now dropped, as the DOC on 11 December confirmed its conclusions in the final determinations in Forged Steel Fluid End Blocks from Italy and Germany.
DOC's reasoning can be found in its Issue and Decision memoranda in the two investigations, accessible through its Access portal. Essentially, DOC found that while the 44.2% free allowances accessible to all facilities subject to ETS are not subsidies, the 100% free allowances accessible to a narrower group on facilities on the "carbon leakage list" are. Here is DOC's reasoning on financial contribution (footnotes omitted):
"...we find that the ETS program has established a system in which all installations (regardless of whether the installation is on the carbon leakage list) are allocated a certain amount of free standard allowances based on the standards of that industry. In other words, we find that there is a standard amount of allowances that are provided throughout the country on a consistent, equal basis. Therefore, we find that the allowances that cover 44.2 percent of the emissions of the most efficient installations, regardless of whether they are provided to a company on the carbon leakage list, are not countervailable, as there is no revenue forgone that is otherwise due.
The ETS program also provides for additional emissions allowances to specific company installations as a result of those installations being placed on the carbon leakage list. We find that these additional allowances are countervailable. Companies on the carbon leakage list that receive these additional allowances are relieved of the obligation to purchase additional allowances – beyond the standard allocation of free allowances – from the government or other parties. The respondent parties state that an operator only receives what the system has established from the outset that it should receive in order to comply with the obligations set by the system, and, thus, such allowances are not countervailable. However, the regulatory system specifically establishes a distinct set of rules for the companies on the carbon leakage list that is unique from the set of rules for other companies under this program. In other words, the ETS system specifically designates certain companies that do not have to incur the full costs incurred by other companies. In this sense, we find it similar to a tax program in which the taxing authority allows all filers to claim a rebate of – for example – 5 percent, but then allows a certain class of filers on a special list to claim a rebate of 10 percent. In that scenario, as in the ETS program, the government has forgone revenue that would otherwise have been due from the companies on the special list....
Further, we find it significant that the ETS program, which the EU characterizes as an environmental protection program, provides additional free allowances to pollute to essentially the worst polluters, while installations that are not on the carbon leakage list are not entitled to these additional allowances. By allowing these listed installations to not have to purchase additional emissions from the government, the government has given up its entitlement to collect revenue. Thus, we find that these additional allowances provided to companies on the carbon leakage list constitute a financial contribution....
If the Biden Administration is really going to tackle climate change, it is going to need to find common ground with the EU and other actors that have taken serious action, at significant risk to their own competitiveness, to do the same. As in so many areas, the legacy being left by the Trump Administration is not going to be helpful.
