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The relevance of process emissions for carbon leakage: A comparison of unilateral climate policy options with and without border carbon adjustment

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Author Info

  • Bednar-Friedl, Birgit
  • Schinko, Thomas
  • Steininger, Karl W.

Abstract

Climate policy arrangements of partial regional coverage, as they seem to emerge from the UNFCCC process, might lead to carbon leakage and hence a broad literature has developed to quantify leakage. Most of these analyses, however, are confined to consider emissions from fuel combustion only. Yet, some of the most relevant simultaneously energy intensive and internationally trade exposed sectors are also subject to substantial emissions from industrial processes. Carbon dioxide emissions can be released in industrial processes which physically or chemically transform materials. In the steel and cement sectors, for example, these process emissions amount to about half of sector carbon dioxide emissions in many countries. We incorporate industrial process emissions based on UNFCCC data into a multi-sectoral multi-regional computable general equilibrium model and analyze the implications of a unilateral EU 20% carbon dioxide emission reduction policy on leakage and the effectiveness of border carbon adjustment in reducing leakage. By comparing the results to a model without process emissions, we find that leakage of climate policy so far has been underestimated. Leakage turns out to be higher when process emissions are correctly accounted for (38% instead of 29% for combustion emissions only). Conversely, border carbon adjustment measures are found to be roughly twice as effective to reduce leakage rates, when process emissions are correctly accounted for — as carbon adjustment rates are more directly targeted to the relevant sectors. Yet, border carbon adjustment measures should not be seen as a panacea as they might impede necessary technological carbon-free innovation, unless they are phased out over time.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 34 (2012)
Issue (Month): S2 ()
Pages: S168-S180

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Handle: RePEc:eee:eneeco:v:34:y:2012:i:s2:p:s168-s180

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Carbon leakage; Embodied carbon; Border tariffs; Process emissions; Low-carbon technologies;

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Cited by:
  1. Qi, Tianyu & Winchester, Niven & Karplus, Valerie J. & Zhang, Xiliang, 2014. "Will economic restructuring in China reduce trade-embodied CO2 emissions?," Energy Economics, Elsevier, vol. 42(C), pages 204-212.
  2. Karl Steininger & Christian Lininger & Susanne Droege & Dominic Roser & Luke Tomlinson, 2012. "Towards a Just and Cost-Effective Climate Policy: On the relevance and implications of deciding between a Production versus Consumption Based Approach," Graz Economics Papers 2012-06, University of Graz, Department of Economics.
  3. Schinko, Thomas & Bednar-Friedl, Birgit & Steininger, Karl W. & Grossmann, Wolf D., 2014. "Switching to carbon-free production processes: Implications for carbon leakage and border carbon adjustment," Energy Policy, Elsevier, vol. 67(C), pages 818-831.
  4. Branger, Frédéric & Quirion, Philippe, 2014. "Would border carbon adjustments prevent carbon leakage and heavy industry competitiveness losses? Insights from a meta-analysis of recent economic studies," Ecological Economics, Elsevier, vol. 99(C), pages 29-39.
  5. repec:hal:ciredw:halshs-00870689 is not listed on IDEAS
  6. Heindl, Peter & Lutz, Benjamin, 2012. "Carbon management: Evidence from case studies of German firms under the EU ETS," ZEW Discussion Papers 12-079, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  7. Koesler, Simon & Pothen, Frank, 2013. "The Basic WIOD CGE Model: A computable general equilibrium model based on the World Input-Output Database," ZEW Dokumentationen 13-04, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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