The relevance of carbon free production processes for carbon leakage and carbon border 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 global leakage rates. While most of these analyses, are confined to consider combustion emissions only, Bednar-Friedl et al. (2012b) have pointed out the particular relevance of process emissions for both leakage rates and effectiveness of border carbon adjustment. We use this expanded framework in considering both combustion and process emissions in a multi-sectoral multi-regional Computable General Equilibrium model and analyze the implications of carbon free processinnovations. As a medium-term alternative to border carbon adjustment, we find that such a technological switch, for example in the European steel industry towards low-carbon electrowinning, can effectively reduce global carbon leakage. For border carbon adjustment considerations this implies their setting including a phase-out, such that incentivesfor carbon free innovations are preserved. Note from admin: See full paper Note from admin: See full paper