The relevance of process emissions for carbon leakage: A comparison of unilateral climate policy options with and without border carbon adjustment
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.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
When requesting a correction, please mention this item's handle: RePEc:eee:eneeco:v:34:y:2012:i:s2:p:s168-s180. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.