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Explore the impact of trade flows and cost allocation on carbon leakage in the context of climate policy. Analyze the benefits and risks of free allocation versus auctioning and assess the potential implications for non-EU countries. Gain insights into key sectors like steel, refineries, and chemicals.
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Trade flows and costs passed through As two critical elements of carbon leakage Sander de Bruyn bruyn@ce.nl
Carbon Leakage Foundation • There is trade with non-EU countries where carbon has no price until 2020 so that exports from EU to these countries will diminish and imports from these countries will grow, resulting in carbon leakage. • To protect the world from carbon leakage (and EU industries from costs), EUAs are better allocated for free. • Companies prone to carbon leakage cannot pass through the costs of EUAs anyway, so windfall profits are not an issue. • Environmental effectiveness stay the same under free allocation, so climate policy of EU is guaranteed. Sander de Bruyn/18 November 2009
Free allocation or auctioning • Environmental impact in 2020 within the EU: Stays the same (-21%). • Cost allocation differs: With auctioning costs are largely paid by companies, with free allocation costs are largely paid by consumers • Risks differ: Auctioning gives risks of carbon leakage, free allocation gives risks of windfall profits energy-intensive companies and shifting the burden of costs to labour intensive industries. • Economic efficiency differs: Auctioning is more efficient resulting in a lower EUA price • Environmental impacts long term differ: A lower EUA price gives more stimulus to more stringent targets and hence auctioning gives a better signal for LT climate policies. • Hence the claim that environmental effectiveness is similar is not true in the long-run. Sander de Bruyn/18 November 2009
Are all non-EU countries potential places of CL? • Carbon leakage discussion assumes that only EU industries are under climate policies in 2020. • However, under a new treaty more countries are likely to accept binding targets. • For imports and exports to these countries costs may be just passed onto the consumers. Sander de Bruyn/18 November 2009
Set up • Analyzing trade flows and cost patterns between EU and non-EU markets for: • Steel • Products from refineries; • Chemicals (Chlorine/PVC); • Cement • Other products • Analyzing the trade intensity: ({import + export}/{productie + import} • CL: trade intensity >30% (or trade intensity >10% and costs/GVA>5%). • For 2005-2008 we will observe price differences in CO2 markets, EU price and non-EU price for (some of these) commodities). Sander de Bruyn/18 November 2009
Refineries: imports Sander de Bruyn/18 November 2009
Refineries: exports Sander de Bruyn/18 November 2009
Steel and steel products: imports Sander de Bruyn/18 November 2009
Steel and steel products: exports Sander de Bruyn/18 November 2009
Chemical sector: imports of chlorine Sander de Bruyn/18 November 2009
Chemical sector: imports of PVC Sander de Bruyn/18 November 2009
Chemical sector: exports of PVC Sander de Bruyn/18 November 2009
Chemical sector: PVC cost pass through? Sander de Bruyn/18 November 2009
Conclusions • EU net exporter of energy-intensive products. • Some of the costs of energy-intensive products have probably been passed through in the product prices, though scientific evidence is sometimes difficult to obtain using econometric analysis. • Large share of the exports and imports come from Annex B countries that, in 2020, will have their own climate change policies. Therefore windfall profits might even increase in 2020 compared to now. Sander de Bruyn/18 November 2009
Thank you for your attention Sander de Bruyn CE Delft bruyn@ce.nl