Carbon Leakage Research Articles

THE FAIRNESS CONTROVERSY OVER CBAM AND ITS POLICY IMPLICATIONS

The idea of a carbon border adjustment mechanism (CBAM) has aroused fervent discussion recently. It is proposed as an effective tool to address the competitiveness loss and carbon leakage induced by unilateral carbon policies. Yet on the brink of this policy being rolled out, its ethical justification seems insufficiently clarified. CBAM implementation would provoke a huge fairness controversy. This paper illustrates the main ethical challenges impeding CBAM’s fairness perception. Two stand out in particular: The first is the lack of a global consensus on appropriate climate equity principles. This means that there is no basis for determining the fairness of CBAM’s burden shifting impact. The second is that CBAM is likely to undermine the procedural justice of the current quantity-oriented responsibility distribution regime under the Paris Agreement. We conclude that CBAM is not well-suited for solving the free-rider problem of the current climate change mitigation policies and emphasize that incentivizing innovation is key for an ambitious mitigation strategy.

Shipping in the EU emissions trading system: implications for mitigation, costs and modal split

ABSTRACT EU recently decided to include shipping, meaning all intra-European shipping and 50% of extra-European voyages, in the EU Emissions Trading System (ETS) beginning in 2024. This article provides an early assessment of the impacts of the EU ETS on the shipping sector’s potential reductions in greenhouse gas emissions for different types of ships. It further examines selected mitigation measures and the impact on modals split and costs. The study employs a mixed-methods approach combining quantitative estimates (based on data from the EU monitoring, reporting and verification system) with qualitative data and information from interviews with key actors and from previous literature. This approach aims to provide a comprehensive understanding of the impacts of the EU ETS. The inclusion of shipping in the EU ETS is expected to introduce significant incentives to reduce emissions. We estimate that switching to bio-methanol at an emissions allowance price of €90–100/tCO2 will be cost-effective for a minor share of shipping segments (representing about 0.5-5% of all ships), whereas at a price above €150/tCO2 it could be cost-effective for a considerable share (potentially 75%) of ships. In the short term, the costs incurred by the EU ETS will be passed on to transport customers as a surcharge. The increased cost may, unless properly addressed, drive carbon leakage. Meanwhile, a modal shift away from shipping may occur in the roll-on, roll-off (RoRo) and roll-on passenger (RoPax) segments due to direct competition with road and rail transport and the relative ease of shifting to other modes of transport.

Do China's pilot emissions trading schemes lead to domestic carbon leakage? Perspective from the firm relocation

The limited geographical coverage of pilot emissions trading schemes (ETS) raises domestic carbon leakage risks. Since relocation represents a primary channel that causes carbon leakage, this paper investigates the impact of China's pilot ETSs on firms' cross-provincial relocation with a method combining propensity score matching and staggered difference-in-differences. The empirical results, based on the data of Chinese listed industrial firms from 2009 to 2020, show that the ETS has accelerated firm relocation by increasing negative attention and social capital investments. According to the threshold analysis, firms with sufficient abatement efforts do not undertake relocation strategies. The theoretical analysis can also be confirmed by further investigations on the price signal distortions and the negative impact of relocation on carbon prices. Moreover, the study also demonstrates the heterogeneous effects across firm characteristics, industry types, and policy design features. Overall, these findings provide a reference for China's government to prioritize the establishment of domestic leakage prevention mechanisms for ETS.

The Impact of the EU Carbon Border Adjustment Mechanism on China’s Exports to the EU

The EU Carbon Border Adjustment Mechanism (CBAM), which is regarded as the EU’s key policy tool to address carbon leakage, might have a non-negligible impact on China’s exports, as China is an important trading partner for the EU’s carbon-intensive products. This paper uses the GTAP-E model to simulate the impact of the EU CBAM on China’s exports to the EU from four aspects, export price, trade structure, trade value and terms of trade, by setting up multiple scenarios. The results show that the EU CBAM reduces the export prices of China’s taxed sectors to the EU, and that the export prices of other sectors show the same change characteristics. The export volume of China’s taxed sectors decreases differently with the export transfer effect and export inhibition effect. In terms of trade value, the EU carbon tariffs not only reduce China’s export value but also lead to a reduction in EU exports. The implementation of the EU CBAM improves the terms of trade of the EU and worsens the terms of trade of China. An expansion of the scope of taxation and a change in the calculation method of carbon emissions would aggravate the change in the terms of trade. The results suggest that feasible measures should be taken to strengthen international cooperation, promote the construction of a unified national carbon market and export diversification, and establish a firm carbon emission accounting system in order to mitigate the negative impact of the EU CBAM.

Тенденции влияния «Группы семи/восьми» на глобальное климатическое управление

This article reviews the changing priorities and commitments of the Group of 7 (G7) and Group of 8 (G8) on climate change and energy security and highlights the trends of their influence on the global climate agenda. The main research method is content analysis of the groups’ documents adopted from 2005 to 2023. The study reveals that, at all stages of cooperation, the G7 endeavoured to secure commitments from emerging market and developing countries to increase their contributions to emissions reduction and accelerate the transition to a low carbon economy. As early as 2009, the advanced countries sought to prevent carbon leakages, regarding a comprehensive climate agreement in Copenhagen as a possible solution. The main principles, priorities, and tasks for attaining global energy security were defined in the 2006 leaders’ statement on global energy security and the St Petersburg action plan. The G7’s Rome and Hamburg initiatives on energy security, adopted after the G8’s suspension, in essence continued the course toward building competitive, diversified, sustainable, and low carbon energy systems, but without Russia. The new paradigm determined a different hierarchy of priorities: promotion of flexible gas markets, including more integrated liquified natural gas (LNG) markets, regulatory and public funding support of investment in energy infrastructure that cannot be built according to market rules, development of oil and natural gas resources from unconventional sources, and enhanced cooperation on critical infrastructure, transit routes, supply chains, and transport. This course was consolidated in subsequent years and entered a new stage in 2022. Since 2021, the G7 has been increasing efforts to renew the global rules and to shape new mechanisms and institutes of global climate governance. The establishment of the climate club, Just Energy Transition Partnerships (JETPs), the Partnership for Global Infrastructure Investment (PGII), adoption of the principles of high integrity carbon markets, and the setting up of new engagement and containment platforms increase the risk of a fragmentation of the established climate governance system and its gradual substitution by a new order functioning in the interests of the G7 and its allies. In view of these risks it is necessary to deepen cooperation with the BRICS+ group led by Brazil, Russia, India, China and South Africa and other emerging market and developing countries to coordinate and promote within the key multilateral institutions, including the United Nations (UN), the Group of 20 (G20), and the World Trade Organization (WTO), a concerted position on the inadmissibility of eroding the existing global climate governance system with the United Nations Framework Convention on Climate Change (UNFCCC) at its centre or the use of climate goals and regulation as protectionist and discriminative instruments, and to advance practical implementation of the principle of common but differential responsibility.

Carbon leakage perspective: Unveiling policy dilemmas in emission trading and carbon tariffs under insurer green finance

This study delves into the intricacies of the policy dilemma surrounding carbon emission trading and carbon tariffs, with a specific focus on the perspective of carbon leakage. Using a capped call option model, we assess the equity of a life insurer, emphasizing the importance of carbon leakage resulting from borrowing by carbon-intensive manufacturers. The findings reveal a nuanced scenario: while an increase in green loans positively impacts the guaranteed rate of the insurer, it simultaneously poses a challenge to the equity of carbon-leakage vulnerable manufacturers. Stringent regulatory caps on emissions act as a limiting factor on guaranteed rates for carbon-intensive borrowers. Additionally, higher Carbon Border Adjustment Mechanism tariff rates contribute to a decrease in the guaranteed rate, affecting both the fund-providing insurer and the borrowing manufacturer. This analysis underscores the intricate balance required in policymaking and decision-making, where an understanding of these complex relationships becomes pivotal. Striking the right balance between environmental sustainability and financial stability is essential to navigating the policy dilemma inherent in carbon emission trading and carbon tariffs.

Macroprudential policies and CO2 emissions: A comparative analysis of G7 and BRIC countries.

This study investigates the impact of macroprudential policies on CO2 emissions in G7 and BRIC countries using country-level panel data from 11 countries, covering the period from 1992 to 2020. The findings indicate that macroprudential policies alleviate CO2 emissions in the sample. Quantile regression results reveal that policies can exacerbate CO2 emissions in countries with high levels of CO2 emissions due to carbon leakage. The positive impact of macroprudential policies on sustainable development can be strengthened by high level of globalisation. Moreover, the influence of macroprudential policies stayed the same based on the basic regression results during the post-global financial crisis (GFC) period, while the impact was positive in the pre-GFC period. Finally, robust tests validated the findings reported in the basic regression model. From this, policymakers should prioritise sustainable economic growth when implementing macroprudential policies and leverage the influence of globalisation to amplify their impact on CO2 emissions. Furthermore, it is crucial to strengthen environmental regulations to prevent carbon leakage that result from industries seeking lenient standards.

The Impact of South Africa’s Carbon Tax Policy on Carbon Leakages on its Top Five African Trading Partners

The carbon leakage phenomenon, whereby decreased carbon emissions in locations with strict constraints on carbon emissions may be offset to some extent by increased carbon emissions in locations with less strict constraints on emissions, has the potential to undermine efforts to mitigating carbon emissions. As such the objective of this study was to use a natural experiment model to estimate the extent of carbon leakage associated with South Africa’s Carbon Tax on the combined carbon emissions of its top five trading African partners (Mozambique, Namibia, Botswana, Nigeria and Eswatini). This was a highly essential study and arguably a first of its kind, to infer causal impact of the carbon tax on carbon leakages using a single group interrupted time-series analysis regression discontinuity design. Results from the study showed that in the long-run, the carbon tax has decreased carbon emission in South Africa by 4.42 percent while increasing carbon emissions in South Africa’s trading partners by 1.003 percent. This shows evidence of a carbon leakage because of the carbon tax, and it is recommended that policymakers should consider trade restrictions to prevent the import of carbon-intensive commodities or institute universal, instead of unilateral, climate change mitigation policies.

Savremeni izazovi kompanija da svoje poslovanje usklađuju sa CBAM regulativom

Climate changes affect all aspects of life and society with wide repercussions on human beings. Ambitious sustainability objectives primarily defined by the Paris Agreement from 2015, via European Green Deal in 2019 get its materialization in various initiatives. One of the main goals set in environmental area in previous period is reflected in significant reduction of greenhouse gas emissions. Simultaneously with the EU intentions that Europe become the first climate-neutral continent till 2050, in May 2023 was adopted Carbon Border Adjustment Mechanism (CBAM) which should prevent so-called "carbon leakage", the behavior of EU-based companies which could move carbon-intensive production abroad to comply with lighter standards. Such behaviour could seriously undermine EU efforts, as well as efforts at the global level to realize sustainable goals. This paper deals with major features, scope and consequences of CBAM regulations, and through case study analysis of domestic company Elixir Group, as an example of good business practice, gave the recommendations for all stakeholders in the Republic of Serbia.

Measures Against Carbon Leakage – Combining Output-Based Allocation with Consumption Taxes

Measures Against Carbon Leakage – Combining Output-Based Allocation with Consumption Taxes

Asymmetric Environmental Regulation, Interfuel Substitution and Carbon Leakage

Asymmetric Environmental Regulation, Interfuel Substitution and Carbon Leakage

Carbon reduction in global supply network design subject to carbon tariffs and location-specific carbon policies

Carbon policies are often limited to specific regions. To avoid stricter carbon emission requirements, companies relocate production to regions without carbon policies that offer a higher degree of flexibility. This effect is known as carbon leakage. To prevent carbon leakage, carbon tariffs are imposed on carbon emissions imported into regulated regions. We present a new model formulation for the design of a global supply network subject to carbon tariffs and location-specific carbon policies. Relevant carbon emissions are captured by a product carbon footprint. This model plans the locations of manufacturing plants and distribution centers and the transportation between them. In addition, we consider the choice of production technologies to enable carbon reduction. The objective is to minimize the net present value. To solve this supply network design model, we apply a fix-and-optimize heuristic. Our numerical study demonstrates that the heuristic provides high-quality solutions in a reasonable time frame. We indicate that combining carbon tariffs with location-specific carbon policies fundamentally changes the economic and environmental consequences for the network design. In addition, we examine how carbon tariffs and location-specific carbon policies affect the choice of carbon-reducing production technologies.

Carbon Leakage to Developing Countries

Carbon Leakage to Developing Countries

Consumption-based versus production-based CO<SUB align="right">2 emissions: drivers of carbon leakage between countries

Consumption-based versus production-based CO<SUB align="right">2 emissions: drivers of carbon leakage between countries

Consumption-based versus production-based CO<SUB align="right">2 emissions: drivers of carbon leakage between countries

Consumption-based versus production-based CO<SUB align="right">2 emissions: drivers of carbon leakage between countries

Focused recharge enhances soil carbon leakage and carbonate weathering in groundwater: Implications for subsurface carbon sinks

Soil carbon leakage into groundwater is a crucial and natural carbon sink process in the subsurface carbon cycling. However, the primary driving force for soil carbon downward leakage and the following fate of the carbon in groundwater remains elusive. Here, we investigated multi-seasonal hydrodynamics, hydrogeochemistry and environmental isotopes (δ13C, δ2H and δ18O) in groundwater wells in a humid region. Frequent water-table rise (1 ∼ 3 m) and isotopic signature fluctuation after the concentrated rainfall supported evidence for the occurrence of focused groundwater recharge. We found that focused recharge during the shorter and wetter season induced the increase of groundwater DOC (306.5 ± 231 μmol/L) and CO2 (2154 ± 726.6 μmol/L), the dilution of CH4 (1.75 ± 1.2 μmol/L) and DIC (4486 ± 790.8 μmol/L) as well as depleted δ13C signatures (−17‰ ∼ −18‰). These variations jointly elucidated accelerated soil carbon downward leakage and hydrodynamic mixing driven by focused recharge. Saturation index calculation and PHREEQC simulations confirmed that massive groundwater CO2 from soil carbon leakage during focused recharge exerted positive perturbations on carbonate weathering, and ultimately stored in a more stable form by transforming into HCO3−. Carbon isotope analysis further identified carbonate weathering accounted for approximately one third of DIC dynamics compared to biogenic sources. This study highlights that focused recharge has a disproportional contribution to flushing soil-derived carbon into groundwater and activating carbonate weathering in the groundwater, with important implications for temporal variability of non-negligible subsurface carbon sinks in the global carbon budget.

EU ETS and voluntary carbon markets: key features and current challenges

Abstract Carbon emissions trading constitutes an important instrument in reaching global climate goals and enhancing energy transition. This brief provides an illustration of the EU ETS and Voluntary Carbon Markets (VCMs), focusing on their main features and some of their current challenges from a regulatory point of view. Issues pertaining to systems’ linkage and carbon leakage in the framework of the EU ETS as well as ensuring the overall project quality in the framework of VCMs have to be successfully faced for such schemes to be effective. The special issues of the interaction between the EU ETS and VCM schemes and their impact on the energy sector are ultimately highlighted.

Pre-anaerobic phase persists benefits for nitrogen removal in high carbon/nitrogen scenarios: Comparative study of aerobic–anoxic and anaerobic–aerobic–anoxic sequencing batch reactors

The pre-anaerobic phase in anaerobic–aerobic–anoxic (AOA) process is critical to intensifying nitrogen removal at low C/N ratios, yet its applicability to high C/N scenarios remains vague. Here, four bench-scale aerobic–anoxic sequencing batch reactors (OA-SBRs) were established at different C/N ratios (3–16.5) and compared with the parallel AOA-SBRs. The results showed that the NH4+–N and TN removal in the OA-SBRs increased by 24.7% and 112.2%, respectively, as the C/N ratio elevated from 3 to 16.5, but they remained lower than those in the AOA-SBRs till carbon leakage. Typical cycle tests indicated that the pre-anaerobic phase probably endowed the endogenous nitrification/denitrification in the AOA-SBRs with kinetic advantages over the canonical ones in the OA-SBRs, supported by the improved enzymatic activities. Further, microbial insights identified more intensive niche competition between heterotrophic nitrifiers/denitrifiers and non-functional heterotrophs in the OA-SBRs, which could explain the poorer nitrogen removal without the pre-anaerobic phase. This study underscores the implications of pre-anaerobic phase in nitrogen removal of AOA process in high C/N scenarios.

Carbon leakage or carbon reduction? Carbon emission effect of the production relocation of metal smelting industry in China

AbstractThe metal smelting industry (MSI) is one of the major carbon emission sectors in China, and it is of great significance to clarify the mechanism and truth of the carbon effect of production relocation (PR) of MSI for reducing national carbon emissions. Based on this thinking and previous studies, we proposed two concepts of relative carbon emission effect (RCE) and absolute carbon emission effect (ACE) of PR, then developed models to explore the impact of PR of MSI (PRM) on national carbon emission between 30 provincial administrative units in China from 2007 to 2017. The study demonstrates that the PRM and its ACE and RCE is divergent across provinces and regions. Overall, the PRM is beneficial to national carbon reduction under both relative and absolute scenarios. Specifically, the transfer‐in PRM of most provinces in central regions is beneficial to national carbon reduction, while the transfer‐out PRM of many provinces in coastal areas has worst carbon leakage effect.

Co-abatement of carbon and air pollutants emissions in China’s iron and steel industry under carbon neutrality scenarios

Co-abatement strategies that can reduce both CO2 and air pollutants emissions are essential for the green and low-carbon transition of China’s iron and steel industry. Most previous studies analyzed CO2 and air pollutants reduction policies independently, but the synergies and tradeoffs between the two types of policies have rarely been investigated. By establishing a bottom-up simulation model that considers combinations of different policy objectives, crude steel demand and technology development options, this study couples air pollutants reduction into the carbon neutrality pathways to evaluate the synergistic effects of different abatement strategies in China’s iron and steel industry. The study also incorporates the indirect CO2 and air pollutants emissions from the upstream energy production sectors into pathway analysis, in order to avoid cross-sectoral carbon and air pollution leakages. The results show that the current emissions reduction policies in the iron and steel industry are far from achieving the carbon neutrality goals. To achieve synergistic reduction in CO2 and air pollutants emissions, the short term policies should mainly rely on increasing the share of the scrap-electric arc furnace (EAF), while reducing crude steel demand and promoting breakthrough technologies, particularly hydrogen-based direct reduction, should play a major role in the long term. Meanwhile, China should promote the decarbonization of power generation and hydrogen production to reduce indirect CO2 and air pollutants emissions from the upstream sectors.