EU carbon leakage list post-2020
Cambridge Econometrics supported the European Commission to determine the post-2020 Carbon Leakage List.
The Carbon Leakage List contains a number of (sub-)sectors which are deemed to face the risk of carbon leakage due to the EU Emission Trading System (ETS).
This is significant because industrial installations deemed to be exposed to a significant risk of carbon leakage receive special treatment to support their competitiveness.
Carbon leakage refers to the situation in which companies, driven by the costs related to climate policy, transfer their production from inside EU countries to regions outside the EU with less strict climate policies.
How was the list determined?
Following a first level quantitative assessment on carbon leakage for all sectors down to a very detailed level (NACE 4-digit level), a preliminary Carbon Leakage List was published by the Commission.
Further qualitative and disaggregated quantitative assessments were implemented by our team and collaborators to analyse sectors that are close to the boundary of the carbon leakage criteria and to assess to what extent these sectors could qualify as being at risk of carbon leakage and hence would require special treatment.
The analytical framework for the qualitative assessments was structured around the three criteria specified by the revised ETS Directive:
- Abatement potential – the extent to which it is possible for individual installations in the sector or sub-sectors concerned to reduce emission levels or electricity consumption
- Market characteristics – the current and projected market characteristics, including any common reference price where relevant (i.e. commodity prices)
- Profit margins – profit margins as a potential indicator of long-run investment or relocation decisions, considering changes in costs of production relating to emission reductions.
The final Carbon Leakage List, based on our assessment, was published by the Commission for 2021-2030 here.