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Competitiveness & carbon leakage – focus on the EU Emissions Trading Scheme -

Competitiveness & carbon leakage – focus on the EU Emissions Trading Scheme -. Julia Reinaud Energy Efficiency and Environment, IEA ICTSD 28 November, 2008. Carbon cost impact: Estimating orders of magnitude.

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Competitiveness & carbon leakage – focus on the EU Emissions Trading Scheme -

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  1. Competitiveness & carbon leakage – focus on the EU Emissions Trading Scheme - Julia Reinaud Energy Efficiency and Environment, IEA ICTSD 28 November, 2008

  2. Carbon cost impact:Estimating orders of magnitude Starting point: the EU emissions trading scheme (EU ETS) introduces cost on industry and power generation – other regions lag behind in climate policy ETS developing in: Australia / Switz. / Canada / US States Discussions in US Congress / Japan (mandatory) / South Korea Concern: enhanced competitiveness of non carbon constrained producers could lead to ‘carbon leakage’ E.g. Reductions achieved by the EU ETS could result in higher emissions elsewhere Direct costs: allowance purchase  Emissions-intensive industries (EUAs currently trading at around €15 /tCO2) Indirect costs: effect of CO2 price on electricity prices  Electricity-intensive sectors

  3. Competitiveness- driven CL- a national sector’s perspective - Consumption-driven Supply-side driven Short term: Production Increase in emissions outside EU (as a result of the EU ETS) = Decrease in emissions in EU (as a result of the EU ETS) Longer term: Investments Changes in trade flows as a result of the EU ETS = Indicator of carbon leakage

  4. Summary of EU-ETS Phase 1 (2005-2007) Preliminary assessment No statistical evidence of a change coinciding with the introduction of the EU ETS Great differences btw sectors … Trade intensity EU-ETS costs: emissions intensive vs. electricity intensive sectors Allocation … but some common features across these activities High price environment for industrial commodities Recent slow-down in these activities Yet, Phase 1 is a poor indicator of what may come End of long-term electricity contracts concluded pre-liberalisation More stringent targets (i.e. higher CO 2 prices ) Not enough time to see investment decisions change But can we identify CO2 price effects on production and invts?

  5. What measures are suggested? • Free allocation of GHG allowances to carbon leakage exposed sectors • Carbon equalisation system(i.e. border adjustment) • Sectoral approaches • Lowering the level of the mitigation target

  6. Assessment of measures with int’l implications • Sectoral approaches (SA) • Pros and limitations  Limits to support? • Border adjustments (BA) • (In)effectiveness of current proposal (EU) • Questions on the table… ‘comparability of action’ • Tracking CL =continuous monitoring trade flows • Measurable impact of CO2 policy in the EU? • More challenging when ROW starts taking action

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