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Sectors Under Scrutiny: Evaluation of Indicators to Assess the Risk of Carbon Leakage in the UK and Germany

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  • Misato Sato
  • Karsten Neuhoff
  • Verena Graichen
  • Katja Schumacher
  • Felix Matthes

Abstract

One of the central debates surrounding the design of the European Union Emissions Trading Scheme is the approach to address carbon leakage concerns. Correctly identifying the economic activities exposed to the risk of carbon leakage represents the first step in mitigating the risk effectively. This paper assesses the robustness of the quantitative assessment criteria used by the European Commission for Phase 3. For example we apply the criteria to data for UK and Germany and compare the results with the Commissions’ assessment conducted at the aggregated EU level. This reveals that sectors’ exposure risk to carbon leakage can vary across different Member States due to differences in production processes, technologies and fuel mix; process emissions; recycling rate differences; product mix differences; sector classification, statistical boundaries, activity allocation differences; and finally difference in data quality. Overall, we find that relative carbon intensity of sectors, measured as cost increase relative to gross value added, provides a robust metric. The analysis also highlights the importance of using high quality and disaggregated data for this assessment. Copyright Springer Science+Business Media Dordrecht 2015

Suggested Citation

  • Misato Sato & Karsten Neuhoff & Verena Graichen & Katja Schumacher & Felix Matthes, 2015. "Sectors Under Scrutiny: Evaluation of Indicators to Assess the Risk of Carbon Leakage in the UK and Germany," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(1), pages 99-124, January.
    • Handle: RePEc:kap:enreec:v:60:y:2015:i:1:p:99-124
    DOI: 10.1007/s10640-014-9759-y
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    3. J. G. Fournier Gabela & F. Freund, 2023. "Potential carbon leakage risk: a cross-sector cross-country assessment in the OECD area," Climatic Change, Springer, vol. 176(5), pages 1-21, May.
    4. Antoine Dechezleprêtre & Misato Sato, 2017. "The Impacts of Environmental Regulations on Competitiveness," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(2), pages 183-206.
    5. Christoph Böhringer & Knut Einar Rosendahl & Halvor Storrøsten, 2021. "Smart hedging against carbon leakage [An overview of the GTAP 9 data base]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 36(107), pages 439-484.
    6. Pan, Xian & Yu, Lihong, 2024. "Do China's pilot emissions trading schemes lead to domestic carbon leakage? Perspective from the firm relocation," Energy Economics, Elsevier, vol. 132(C).
    7. Yu, Pei & Cai, Zhengfang & Sun, Yongping, 2021. "Does the emissions trading system in developing countries accelerate carbon leakage through OFDI? Evidence from China," Energy Economics, Elsevier, vol. 101(C).
    8. Böhringer, Christoph & Rosendahl, Knut Einar & Storrøsten, Halvor Briseid, 2017. "Robust policies to mitigate carbon leakage," Journal of Public Economics, Elsevier, vol. 149(C), pages 35-46.
    9. Cludius, Johanna & de Bruyn, Sander & Schumacher, Katja & Vergeer, Robert, 2020. "Ex-post investigation of cost pass-through in the EU ETS - an analysis for six industry sectors," Energy Economics, Elsevier, vol. 91(C).
    10. Christoph Böhringer & Knut Einar Rosendahl & Halvor Briseid Storrøsten, 2015. "Mitigating carbon leakage: Combining output-based rebating with a consumption tax," ZenTra Working Papers in Transnational Studies 54 / 2015, ZenTra - Center for Transnational Studies.
    11. Kaushal, Kevin Raj, 2018. "Emission price, output-based allocation and consumption tax: Optimal climate policy in the presence of another country’s climate policy," Working Paper Series 8-2018, Norwegian University of Life Sciences, School of Economics and Business.
    12. Kevin R. Kaushal & Knut Einar Rosendahl, 2020. "Taxing Consumption to Mitigate Carbon Leakage," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 75(1), pages 151-181, January.
    13. Hille, Erik & Shahbaz, Muhammad, 2019. "Sources of emission reductions: Market and policy-stringency effects," Energy Economics, Elsevier, vol. 78(C), pages 29-43.
    14. Fournier Gabela, Julio G. & Freund, Florian, 2022. "Potential carbon leakage risk: A cross-sector cross-country assessment in the OECD area," Conference papers 333468, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    15. Ajayi, V. & Reiner, D., 2018. "European Industrial Energy Intensity: The Role of Innovation 1995-2009," Cambridge Working Papers in Economics 1835, Faculty of Economics, University of Cambridge.
    16. Jakob, Michael, 2021. "Climate policy and international trade – A critical appraisal of the literature," Energy Policy, Elsevier, vol. 156(C).
    17. Sakai, Marco & Barrett, John, 2016. "Border carbon adjustments: Addressing emissions embodied in trade," Energy Policy, Elsevier, vol. 92(C), pages 102-110.
    18. Cooper, Samuel J.G. & Allen, Stephen R. & Gailani, Ahmed & Norman, Jonathan B. & Owen, Anne & Barrett, John & Taylor, Peter, 2024. "Meeting the costs of decarbonising industry – The potential effects on prices and competitiveness (a case study of the UK)," Energy Policy, Elsevier, vol. 184(C).
    19. Griffiths, Steve & Sovacool, Benjamin K. & Furszyfer Del Rio, Dylan D. & Foley, Aoife M. & Bazilian, Morgan D. & Kim, Jinsoo & Uratani, Joao M., 2023. "Decarbonizing the cement and concrete industry: A systematic review of socio-technical systems, technological innovations, and policy options," Renewable and Sustainable Energy Reviews, Elsevier, vol. 180(C).
    20. Susanne Droege & Carolyn Fischer, 2020. "Pricing Carbon at the Border: Key Questions for the EU," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 18(01), pages 30-34, April.
    21. Quentin Perrier & Philippe Quirion, 2017. "La transition énergétique est-elle favorable aux branches à fort contenu en emploi ? Une analyse input-output pour la France," Revue d'économie politique, Dalloz, vol. 127(5), pages 851-887.

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    More about this item

    Keywords

    Emissions trading; Carbon leakage; Emissions leakage; Trade effects; Cost exposure; Q58; Q54; H23; F13; F18; H87;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F18 - International Economics - - Trade - - - Trade and Environment
    • H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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