Analysis of Carbon Leakage under Phase III of the EU Emissions Trading System: Trading Patterns in the Cement and Aluminium Sectors

Sean Healy,Katja Schumacher,Wolfgang Eichhammer,Wolfgang Eichhammer

doi:10.3390/en11051231

Sean Healy, Katja Schumacher + Show 2 more

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https://doi.org/10.3390/en11051231

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Abstract

This paper contributes to the existing literature on carbon leakage by using a range of different publically available datasets in order to develop a systematic approach for identifying whether products are potentially at risk of carbon leakage. The scope of this paper focuses on the cement and aluminium sectors at different levels of product aggregation to demonstrate the variation in trade patterns that exist over time. The evolution of EU-28 trade flows with third countries for these sectors between 2000 and 2016 enables the selection of key third countries that could warrant further investigation via more quantitative techniques in order to determine the impact of carbon pricing on trade patterns. This systematic approach could be replicated for additional sectors in further research as part of a more regular assessment to provide evidence of carbon leakage for European industry. No evidence of carbon leakage is found in this paper for clinker and cement, while there is no conclusive evidence for unwrought non-alloyed aluminium and aluminium products.

Highlights

IntroductionThe European-Union Emissions Trading System (EU ETS) is a cap and trade scheme that requires participating installations to obtain allowances to cover their greenhouse gas (GHG) emissions
The European-Union Emissions Trading System (EU ETS) is a cap and trade scheme that requires participating installations to obtain allowances to cover their greenhouse gas (GHG) emissions.Energy intensive industries across Europe have long argued that it may be necessary to relocate their production activities to unregulated countries in order to avoid the competitive disadvantages associated with their participation in the EU ETS
The aim of this study is to identify any changes in trade patterns that may have occurred at different levels of product aggregation for the cement and aluminium sectors, especially after the revision to the EU ETS at the start of the third trading period

Summary

Introduction

The European-Union Emissions Trading System (EU ETS) is a cap and trade scheme that requires participating installations to obtain allowances to cover their greenhouse gas (GHG) emissions. Energy intensive industries across Europe have long argued that it may be necessary to relocate their production activities to unregulated countries in order to avoid the competitive disadvantages associated with their participation in the EU ETS. To mitigate the risk that the cost associated with surrendering these allowances could competitively disadvantage European industry, relative to those that are not subject to the same carbon pricing, the majority of the allowances were initially issued for free (i.e., based mainly upon historic emissions or capacity) in the first two trading periods (2005–2012). Major revisions to strengthen the EU ETS were undertaken for the third trading period (2013–2020), especially with respect to allowance allocation and included: . The move to a single union-wide cap, instead of national caps, standardised the approach to improve the harmonisation of ambition between Member States and the level of allocation to their industries.

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