Carbon Tax, Carbon Leakage and the Theory of Induced Innovation in the Decarbonisation of Industrial Processes: The Case of the Port of Rotterdam

Alberto Gianoli,Felipe Bravo

doi:10.3390/su12187667

Abstract

A higher price of CO2 emissions is required to enhance the industrial transition and investment in low-carbon technology. However, the specific mechanisms to tackle the risk of carbon leakage and create an attractive environment for green investment are highly contested in the academic literature. Opposing perspectives regarding the appropriateness and desirability of government intervention in the economy result in different approaches to the decarbonisation of industrial processes. This research builds on existing academic knowledge in the fields of carbon leakage, induced innovation and government intervention to assess the effects of a carbon tax in the industrial cluster of the Port of Rotterdam within the context of a carbon tax on industrial GHG emissions proposed in the Dutch National Climate Agreement. The main finding of this study shows that investment leakage constitutes the main threat instead of carbon leakage in the face of a higher carbon price. Regarding the theory of induced innovation, limited abatement options are available for the industrial cluster and there is the need to scale up existing technologies. Lastly, to both tackle the risk of investment leakage and enhance the scaling up of low-carbon technologies, government intervention in the form of regulations, subsidies and enabling conditions is vital.

Highlights

In the two to four decades, CO2 emissions from the use of fossil fuels needs to be eliminated and the large amount of CO2 that is already in the atmosphere needs to be removed, to prevent the Earth’s temperature from rising above 2 ◦C
The industries operating in the industrial cluster of the Port of Rotterdam (PoR) are characterised by the production Soufsltaoiwnab-viliatylu20e2c0o, 1m2,m76o67dities with no product differentiation, and their trading is based in large vol6uomf e23s with low margins
This study concludes that a carbon tax on its own will not enhance the industrial transition of the companies operating in the PoR towards low-carbon production and could instead induce investment leakage

Summary

Introduction

In the two to four decades, CO2 emissions from the use of fossil fuels needs to be eliminated and the large amount of CO2 that is already in the atmosphere needs to be removed, to prevent the Earth’s temperature from rising above 2 ◦C. High capital intensity as a consequence of large investments in infrastructure and technology with payback periods of between 20 to 40 years, which provides few windows of opportunity to change technology [16,19] These conditions create high barriers to market entry and exit, resulting in a small number of well-established multinationals owning factories around the world, and having a dominant position in the supply of basic materials [16]. Due to these characteristics, EIIs face greater difficulties in the decarbonisation challenge than other industrial sectors as the best available technologies (BATs), even when applied on a large scale, can only curb emissions between 15–30% at best [3,15].

Objectives

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Results

Discussion

Conclusion