This briefing aims to provide clarity to the ongoing debate on Europe’s industrial competitiveness and the effect of climate polices. There is very little factual evidence substantiating that the risk of carbon leakage is real.
Over the last years, concerns from the energy intensive companies regarding the effect of climate and energy policy on competitiveness have been one of the main hurdles to progress. Several energy intensive sector groups have claimed that EU climate action results in “carbon leakage,” or the supposed flight of EU business to other locations where there are less strong climate policies.
To accommodate these concerns, EU policymakers have decided for instance to decrease the ambition level of emission reductions (20% instead of 30% reductions by 2020) and allocate emission allowances in the EU’s Emissions Trading Scheme for free to sectors “at risk of carbon leakage”.
However, over the last years we have witnessed that many industrial sectors have gained unjustified advantages from the design of EU climate policies.
Contrary to claims by energy intensive sector groups, European industries (including steel firms and refineries) have passed on costs related to the EU’s emissions trading scheme to consumers . Moreover, energy intensive industries, and in particular cement and steel firms, have built up a major reserve of carbon emission allowances that they obtained for free. This reserve is expected to grow further up to 2020, and can also be used for compliance post-2020.