Carbon leakage and the future of Old Industrial Regions

The document argues that national-level analyses of carbon leakage underestimate the severe economic risks to Old Industrial Regions (OIRs), where heavy industry is highly concentrated. Using an applied general equilibrium (AGE) model for the Basque Country, the authors find that relocating 1.5% to 35% of iron and steel production could lead to a GDP drop of up to 2.26%. While such relocation reduces CO2 emissions, the implicit cost of this mitigation (187 to 202 €/Tco2) is significantly higher than technological alternatives like carbon capture and storage. The authors recommend that climate policies be carefully designed to avoid imposing undue burdens on sectors prone to relocation in OIRs.

• National and supra-national analyses of carbon leakage often overlook the severe localized impacts on Old Industrial Regions (OIRs) because the iron and steel industry is highly concentrated in these specific areas.
• The Basque Country is a significant hub for the iron and steel industry, producing 10% of the EU's total output from Electric Arc Furnace (EAF) mills and nearly 50% of Spain's total steel production.
• The Basque steel industry is highly energy-efficient, utilizing mini-mills with EAF technology that are among the least CO2-intensive plants globally, meaning further efficiency gains are limited by current technology.
• Relocation of the iron and steel industry in the Basque Country between 1.5% and 35% is estimated to cause a GDP decline of between 0.09% and 2.26%, representing a total loss of 470 million € to 1.686 billion €.
• Relocation of the industry leads to a reduction in CO2 emissions of 0.23% to 4.42% (100 to 705 KtCO2), with indirect reductions in other sectors accounting for nearly half of the total effect.
• The implicit cost of reducing CO2 emissions through industry relocation is extremely high, ranging from 187 €/Tco2 to 202 €/Tco2, which far exceeds the cost of technological mitigation options.

APA

González-Eguino, M., Galarraga, I., & Ansuategi, A. (2010). Carbon leakage and the future of Old Industrial Regions. Basque Centre for Climate Change. https://www.bc3research.org/h6T8Uy8Nm4gFs0O/20110124011205538716391.pdf

Chicago

González-Eguino, Mikel, Ibon Galarraga, and Alberto Ansuategi. Carbon leakage and the future of Old Industrial Regions. Basque Centre for Climate Change, 2010. https://www.bc3research.org/h6T8Uy8Nm4gFs0O/20110124011205538716391.pdf.

Wikipedia

{{cite report |last1=González-Eguino |first1=Mikel |last2=Galarraga |first2=Ibon |last3=Ansuategi |first3=Alberto |title=Carbon leakage and the future of Old Industrial Regions |publisher=Basque Centre for Climate Change |date=June 2010 |url=https://www.bc3research.org/h6T8Uy8Nm4gFs0O/20110124011205538716391.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{gonzlezeguino2010carbon, author = {González-Eguino, Mikel and Galarraga, Ibon and Ansuategi, Alberto}, title = {{Carbon leakage and the future of Old Industrial Regions}}, institution = {Basque Centre for Climate Change}, year = {2010}, month = jun, url = {https://www.bc3research.org/h6T8Uy8Nm4gFs0O/20110124011205538716391.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }