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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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  • 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.

Suggested Citation

  • Bednar-Friedl, Birgit & Schinko, Thomas & Steininger, Karl W., 2012. "The relevance of process emissions for carbon leakage: A comparison of unilateral climate policy options with and without border carbon adjustment," Energy Economics, Elsevier, vol. 34(S2), pages 168-180.
  • Handle: RePEc:eee:eneeco:v:34:y:2012:i:s2:p:s168-s180
    DOI: 10.1016/j.eneco.2012.08.038
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    References listed on IDEAS

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    Cited by:

    1. Antimiani, Alessandro & Costantini, Valeria & Kuik, Onno & Paglialunga, Elena, 2016. "Mitigation of adverse effects on competitiveness and leakage of unilateral EU climate policy: An assessment of policy instruments," Ecological Economics, Elsevier, vol. 128(C), pages 246-259.
    2. Böhringer, Christoph & Balistreri, Edward J. & Rutherford, Thomas F., 2012. "The role of border carbon adjustment in unilateral climate policy: Overview of an Energy Modeling Forum study (EMF 29)," Energy Economics, Elsevier, vol. 34(S2), pages 97-110.
    3. Brita Bye & Taran Fæhn & Orvika Rosnes, 2015. "Residental energy efficiency and European carbon policies A CGE-analysis with bottom-up information on energy efficiency technologies," Discussion Papers 817, Statistics Norway, Research Department.
    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. 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.
    6. Michael Jakob & Jan Christoph Steckel & Ottmar Edenhofer, 2014. "Consumption- Versus Production-Based Emission Policies," Annual Review of Resource Economics, Annual Reviews, vol. 6(1), pages 297-318, October.
    7. Sheldon, Ian & McCorriston, Steve, 2014. "Climate Policy and Border Measures: The Case of the US Aluminum Industry," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169544, Agricultural and Applied Economics Association.
    8. 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.
    9. Stefan Nabernegg & Birgit Bednar-Friedl & Fabian Wagner & Thomas Schinko & Janusz Cofala & Yadira Mori Clement, 2017. "The Deployment of Low Carbon Technologies in Energy Intensive Industries: A Macroeconomic Analysis for Europe, China and India," Energies, MDPI, Open Access Journal, vol. 10(3), pages 1-26, March.
    10. 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.
    11. repec:eee:energy:v:143:y:2018:i:c:p:191-201 is not listed on IDEAS
    12. Karl Steininger & Birgit Bednar-Friedl & Wolf Grossmann & Thomas Schinko, 2013. "The relevance of carbon free production processes for carbon leakage and carbon border adjustment," EcoMod2013 5482, EcoMod.
    13. 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.
    14. Schenker, Oliver & Koesler, Simon & Löschel, Andreas, 2014. "On the effects of unilateral environmental policy on offshoring in multi-stage production processes," CAWM Discussion Papers 77, University of Münster, Center of Applied Economic Research Münster (CAWM).
    15. 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.
    16. repec:eee:jrpoli:v:52:y:2017:i:c:p:173-180 is not listed on IDEAS
    17. Sakai, Marco & Barrett, John, 2016. "Border carbon adjustments: Addressing emissions embodied in trade," Energy Policy, Elsevier, vol. 92(C), pages 102-110.
    18. Liu, Hongguang & Liu, Weidong & Fan, Xiaomei & Zou, Wei, 2015. "Carbon emissions embodied in demand–supply chains in China," Energy Economics, Elsevier, vol. 50(C), pages 294-305.

    More about this item

    Keywords

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

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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