The future of old industrial regions in a carbon-constrained world

Abstract

Even if a global agreement is achieved on climate change issues, it is likely that national policies will continue to differ. Consequently, the competitiveness of some industries could be affected and the so-called ‘carbon leakage’ effect might occur. This effect is more likely for those industries with a risk of relocation. Most of the studies that examine the carbon leakage phenomenon look at implications at the national or supra-national level, and neglect the important fact that some of the key industries affected are highly concentrated in the old industrial regions (OIRs). From a regional perspective, it is clear that these areas are affected more severely by climate policies. Using a computable general equilibrium (CGE) model, the impacts for one of the most vulnerable sectors – the iron and steel (IS) sector in the European OIR of the Basque Country (BC) – are first examined. The analysis is then replicated for the OIR of the North RhineWestphalia (NRW) region in Germany. The results show that although total effects may be diluted from a national perspective, the economic impact at the regional level may be quite large and may significantly reduce regional gross domestic product (GDP). This has broader implications for the OIRs and suggests a need to further explore policy insights for economic development and adaptation in them.