EU climate policies and their impact on sectoral shifts and trade in the Dutch economy

This paper examines the impact of EU climate policies - specifically the industry-focused Emissions Trading System (ETS 1) and the Carbon Border Adjustment Mechanism (CBAM) - on trade patterns in the EU, with a focus on the Netherlands. Using the GREEN-R computable general equilibrium (CGE) model developed by CPB and PBL, we simulate how these policies reshape the Dutch economy over a ten-year horizon. Results suggest a shift away from emission-intensive manufacturing sectors toward lower-emission sectors such as services, both in the EU and the Dutch economy. The ETS raises production costs for targeted industries, which may affect international competitiveness and could lead to carbon leakage through lower exports and higher imports. The CBAM is projected to partially offset these effects by discouraging imports of carbon-intensive goods. Meanwhile, the transition to a higher use of renewable energy drives a sharp reduction in fossil fuel imports, improving the fossil fuel trade balance. Impacts on trade in industrial goods are more heterogeneous and depend on sectoral emission intensity and competitiveness. Linking these outcomes to Dutch labour market data, model simulations suggest that overall employment effects are limited, though some affected sectors may experience job losses in some occupations, such as engineering.