Carbon Leakage and Competitiveness under the EU ETS

Abstract

The introduction of a carbon price through an emissions trading scheme such as the European Union's Emissions Trading Scheme (EU ETS) can create the risk of carbon leakage. The European Commission presented a list of sectors which were deemed to be exposed to a significant risk of carbon leakage in December 2009. The listed sectors receive a share of emissions allowances free of charge between 2010 and 2014 as a policy response to the risk of carbon leakage within industrial sectors covered by the EU ETS. This paper analyses the effectiveness of the Commission's carbon leakage list in achieving two important policy goals - ensuring the global competitiveness of certain industry sectors covered by the EU ETS whilst maintaining the efficacy of the EU ETS in reducing greenhouse gas emissions.