Allocation, allocation, allocation! The political economy of the development of the European Union Emissions Trading System

Sato, Misato; Rafaty, Ryan; Calel, Raphael; Grubb, Michael

doi:10.1002/wcc.796

Cited by 18 publications

(10 citation statements)

References 97 publications

(112 reference statements)

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“…Proportionately, the government of Chelyabinsk region will also lose a part of its tax revenue. We believe that the events described in the second variation of the first scenario are more likely since a gradual decrease in the value of free quotas in the EU by 2035, as the CBAM is introduced, appears unavoidable (see Sato, Rafaty, Calel, & Grubb, (2022); Ellerman, Marcantonini, Zaklan (2016)).…”

Section: Resultsmentioning

confidence: 99%

Border Carbon Adjustment: Implications for Russian Companies and Regions in the Context of the Russia Sanctions (the case of Magnitogorsk Iron and Steel Works and Chelyabinsk region)

Belik

Starodubets

Yachmeneva³

et al. 2022

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Relevance. There are at least two serious challenges that Russian exporting companies are now facing: first, in 2021, the EU introduced the carbon border adjustment mechanism (CBAM), which will come into force in 2026, and, second, since February 2022, many exporters have been subject to the EU sanctions as part of the Russia sanctions regime. There is much uncertainty surrounding the duration of the current sanctions episode as well as the introduction of the carbon tax in the Middle Eastern and Asian countries. Research objective. The study aims to assess potential economic losses resulting from the CBAM introduction and the pressure of sanctions on the Russian exporters of metallurgical products and their home regions. The study focuses on the case of Magnitogorsk Iron and Steel Works (MMK) and Chelyabinsk region. Data and methods. Methodologically, the study relies on scenario analysis. Two scenarios are considered: the EU sanctions against Russian steel companies will be lifted after 2024–2025 and the sanctions will not be lifted in the near future. For each scenario, two variations are analyzed and the annual economic losses are calculated both for MMK and for Chelyabinsk region. The data for the study was taken from ММК official reports. Results. If the EU sanctions are lifted in the nearest future, at the initial stages of the carbon tax introduction, the economic consequences for Russian exporters will be insignificant. In the future, however, carbon regulation can create serious threats to the financial condition of such enterprises even if exports account for a small share of their revenue. If the EU sanctions stay in place, Russian enterprises are likely to search for trade partners in the Middle East and Asia. If the latter introduce a carbon tax, Russian companies can enjoy a competitive edge due to the comparatively low carbon intensity. Conclusions. To ensure Russian steel companies’ competitive edge, it is necessary to stimulate them to reduce their carbon footprint and create a national carbon regulation system. Not only will this measure help to reduce the loss of export income and regional governments’ tax revenues but it will also enable companies to stay competitive and deal more effectively with the sanctions pressure.

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Section: Resultsmentioning

confidence: 99%

Border Carbon Adjustment: Implications for Russian Companies and Regions in the Context of the Russia Sanctions (the case of Magnitogorsk Iron and Steel Works and Chelyabinsk region)

Belik

Starodubets

Yachmeneva³

et al. 2022

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“…While leakage risk is low overall and concentrated in a few key material sectors, politically, it cannot be ignored. Companies will almost always fight efforts by government to extract revenue from their sector, and at a local level, politicians can rarely ignore a company threatening to cut jobs and relocate demanding exemptions from, or compensations for, climate policy (46).…”

Section: Carbon Leakage and Supply Chain Leverage: Mechanisms And Scalementioning

confidence: 99%

“…Thus, free allocation is neither simple-as demonstrated by the tortuous evolution and endless negotiations of allocation approaches in the EU ETS (46) and other systems-nor free. It is actually very costly and makes it much harder or even impossible to achieve the objective of deep decarbonization.…”

Section: Exemptions and Free Allowancesmentioning

confidence: 99%

Carbon Leakage, Consumption, and Trade

Grubb

Jordan

Hertwich

et al. 2022

Annu. Rev. Environ. Resour.

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We review the state of knowledge concerning international CO2 emission transfers associated particularly with trade in energy-intensive goods and concerns about carbon leakage arising from climate policies. The historical increase in aggregate emission transfers from developing to developed countries peaked around 2006 and declined since. Studies find no evidence that climate policies lead to carbon leakage, but this is partly due to shielding of key industrial sectors, which is incompatible with deep decarbonization. Alternative or complementary consumption-based approaches are needed. Private sector initiatives to trace and address carbon emissions throughout supply chains have grown substantially but cannot compensate for inadequate policy. Three main price-based approaches to tackling carbon leakage are potentially compatible with international trade rules: border adjustments on imports, carbon consumption charges, and climate excise contributions combined with emissions trading. We also consider standards and public procurement options to tackle embodied emissions. Finally, we discuss proposals for carbon clubs involving cooperation among a limited set of countries. Expected final online publication date for the Annual Review of Environment and Resources, Volume 47 is October 2022. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

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“…Even in the European Union, which is considered an innovator in climate policy, carbon-intensive industry associations actively endorsed the emissions trading scheme (ETS) during periods of reform but used it as a Trojan Horse to preempt stricter regulations (Markard and Rosenloom 2020). Industry also negotiated substantial exemptions, such as the grandfathering of free allowances and the carbon leakage list that exempts trade-exposed carbon-intensive industries from a carbon price altogether (Sato et al 2022).…”

Section: Climate Policy Obstructionismmentioning

confidence: 99%

Political Strategies to Overcome Climate Policy Obstructionism

Srivastav¹,

Rafaty²

2022

Perspect. polit.

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Great socioeconomic transitions bring about the demise of certain industries and the rise of others. The losers of the transition tend to deploy a variety of tactics to obstruct change. We develop a political-economy model of interest group competition and garner evidence of tactics deployed in the global climate movement. From this we deduce a set of strategies for how the climate movement competes against entrenched hydrocarbon interests. Five strategies for overcoming obstructionism emerge: (1) appeasement, which involves compensating the losers; (2) co-optation, which seeks to instigate change by working with incumbents; (3) institutionalism, which involves changes to public institutions to support decarbonization; (4) antagonism, which creates reputational or litigation costs to inaction; and (5) countervailance, which makes low-carbon alternatives more competitive. We argue that each strategy addresses the problem of obstructionism through a different lens, reflecting a diversity of actors and theories of change within the climate movement. The choice of which strategy to pursue depends on the institutional context.

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Allocation, allocation, allocation! The political economy of the development of the European Union Emissions Trading System

Cited by 18 publications

References 97 publications

Border Carbon Adjustment: Implications for Russian Companies and Regions in the Context of the Russia Sanctions (the case of Magnitogorsk Iron and Steel Works and Chelyabinsk region)

Border Carbon Adjustment: Implications for Russian Companies and Regions in the Context of the Russia Sanctions (the case of Magnitogorsk Iron and Steel Works and Chelyabinsk region)

Carbon Leakage, Consumption, and Trade

Political Strategies to Overcome Climate Policy Obstructionism

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