ANALYSIS: The Risk of carbon leakage in the context of increasing the EU greenhouse gas emission reduction target
We are pleased to present the results of the first analysis prepared within the LIFE Climate CAKE PL project, based on d-PLACE model titled “The Risk of carbon leakage in the context of increasing the EU greenhouse gas emission reduction target”. The publication consist of two documents – Full report in English language and Summary which is available in polish language.
The purpose of publication was to assess the possible scale of the carbon leakage using various assumptions and policy scenarios, including the impact on emission levels, GDP and the functioning of economic sectors.
Based on the results of the analysis it should be concluded that carbon leakeage may limit the effectivness of EU climate and energy policy implementation and thus affect the overall volumes of emissions as well as affect the functioning of the economy, industry and the level of well- being in countries with tight reduction targets. Based on the results of the analysis, it can be concluded that the carbon leakeage outside the EU should be seen as an important problem that may affect EU Member States whose energy mix is based on fossil fuels (including Poland) and energy-intensive sectors, i.e. the steel, mineral and chemical sectors.
According to the analysis:
- The application of a more restrictive emission reduction target in the EU (45% instead of 40% in 2030) and the introduction of a market stability reserve (MSR) may have the opposite neagtive effect and can cause an increasing emissions at global level if f the states from outside the EU, will not undertake emission reduction actions.
- Differences in the production and emission structure in different sectors contribute to scale of carbon leakage to a similar extent. Therefore the EU should tackle emissions by changing the energy mix (eg. by promoting fule efficient technologies ) and sectoral structure (eg. through free allocation or adjustment of border taxes).
- The analysis of the results of the model with emission reduction targets (NDCs) and the free allocation of allowances within the EU ETS shows that the losses for the sectors receiving free allocation are actually lower.
- The results are also influenced by the inclusion of external technological progress – it was assumed that the use of fossil fuels will gradually decrease, regardless of the adopted reduction targets. This assumption allows a better reflection of the changing reality.
Preliminary results of the analysis were presented among others during COP24 in Katowice and at the meeting of the Steering Committee in December 2018 and this year at the Joint Research Center (JRC) workshop in May in Seville as well as at the GTAP conference in June 2019 (22nd Annual Conference on Global Economic Analysis, University of Warsaw Warsaw, Challenges to Global, Social, and Economic Growth in Warsaw).
- Full analysis in English:
- Summary of the analysis in Polish: