Carbon Leakage in the EU in the Light of the Paris Climate Agreement

Abstract

Despite the recent adoption of the Paris climate agreement, countries taking climate change action are still faced with a potential risk of carbon leakage due to the absence of a uniform carbon price at the global level. This paper analyses the European Union’s current and proposed carbon leakage legislation in order to identify its strengths and weaknesses. It emphasises that the environmental and economic integrity of the European Union’s measures is of crucial importance due to the fact that the European Union’s leadership in global climate legislation is highly dependent on it and also since the European Union’s legislation has already served and is likely to continue serving as a model for similar cap and trade systems worldwide. The paper concludes that the current regulation of carbon leakage in the European Union leads to the overprotection of sectors which are considered to be exposed to a significant risk of carbon leakage and that further revisions of the system are necessary.