1. Risk and reality of carbon leakage
Observations on the reports of
Climate Strategies
&
Carbon Trust
European Parliament EU ETS roundtable
10 June 2008
Contribution Vianney Schyns
IFIEC Europe

2. Climate Strategies
Impact on Gross Value Added at € 20/ton CO2 and € 10/MWh:
Key observations
Sectors with GVA impact > 4% are … all EU ETS sectors + some others
Impact triples at expected higher prices, e.g. Deutsche Bank € 67/ton by 2020
Study is not conclusive whether leakage will not occur, on the contrary …
Leakage is likely for all sectors, at higher CO2-prices

3. Carbon Trust
Carbon price signal: lower product demand (price elasticity), higher demand
of substitutes, fewer exports & more imports = carbon leakage:
Key observations
Economists argue degree of price elasticity
Carbon Trust modelled leakage >> lower demand
This is more than “a few percentage points”
Report mentions all EU ETS sectors and signals either likelihood of leakage
or major uncertainties

4. Climate Strategies & Carbon Trust
Three solutions against leakage: (1) global carbon market – sectoral agreements, (2) Border Adjustments, (3) benchmarks in proportion to actual production – dynamic benchmarking
CS & CT dislike solution 3: loss of carbon price signal
But solution 3 provides clear carbon signals:
Resistance to “update” of allocation, new entrants and closures (same benchmark for existing & new entrant plants), market share competition, exactly like auctioning
Carbon price signal to combat leakage, the opposite of auctioning & ex- ante frozen allocation
Typical statement of Carbon Trust: “The actual degree of emissions “leakage” combines many uncertanties in demand, trade and abatement responses”
Conclusion: There is either loss of profits and loss of carbon price signal, or carbon leakage, or a combination thereof