Analysis of the competitive situation and the carbon leakage risk of European industries

Abstract

This report presents the findings of the project “Analysis of the competitive Situation and the Carbon Leakage risk in European industries”. The aim of the project was to examine how new climate policy developments at the time were affecting the established debate on carbon leakage, and what policy measures required to address these developments. In addition to a literature review and a theoretical framework outlining the relationship between the Nationally Determined Contributions (NDCs) under the Paris Agreement on the one hand and carbon leakage on the other, the report also includes an analysis of the climate policies of the European Union’s twelve largest trading partners since the Paris Agreement came into force. The aim of this analysis was to determine the relevance of the respective climate policy frameworks for assessing the risk of carbon leakage.In a further work package, an econometric model was used to estimate the impact of the allocation rules in the third trading period and the higher carbon price on the risk of carbon leakage. Finally, the implications of adjusting the trade intensity indicator for the 2021–2030 carbon leakage list were analysed in light of developments in the climate targets of the EU’s trading partners.