Modelling the Impact of Policy Interventions on Carbon Leakage

The research paper evaluates the economic and emissions impacts of increasing the EU's 2020 GHG reduction target to 30%. Using the E3MG model, it focuses on three energy-intensive sectors: iron and steel, aluminium, and cement. The findings indicate that while a 30% target significantly increases EU ETS allowance prices, there is no evidence of substantial carbon leakage through import substitution. Border adjustment measures partially protect EU output but have a negligible macroeconomic impact, as the affected sectors collectively account for less than 1% of EU GDP.

• The distribution of the emissions reduction burden between ETS and non-ETS sectors affects the carbon price; a more even split reduces the carbon price faced by energy-intensive sectors and lowers the resulting impact on their economic output.
• Despite the shift to a higher emissions target and the resulting reduction in EU output for the iron and steel, aluminium, and cement sectors, there is no evidence that this leads to substantial carbon leakage via import substitution.
• Border adjustments, designed to offset direct carbon costs, can partially protect EU output, but they are not sufficient to maintain output levels at the same level as the reference scenario.
• The macroeconomic impact of border adjustments is minimal because the targeted sectors are small relative to the overall economy, collectively representing less than 1% of EU GDP.
• Revenues generated from CO2 pricing on imports are modest in macroeconomic terms and have a negligible effect on results even when recycled into the economy.

APA

Pollitt, H., Summerton, P., & Thoung, C. (2012). Modelling the Impact of Policy Interventions on Carbon Leakage. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/assessment-with-the-e3mg-model-final-120612.pdf

Chicago

Pollitt, Hector, Philip Summerton, and Chris Thoung. Modelling the Impact of Policy Interventions on Carbon Leakage. Climate Strategies, 2012. https://climatestrategies.org/wp-content/uploads/2014/11/assessment-with-the-e3mg-model-final-120612.pdf.

Wikipedia

{{cite report |last1=Pollitt |first1=Hector |last2=Summerton |first2=Philip |last3=Thoung |first3=Chris |title=Modelling the Impact of Policy Interventions on Carbon Leakage |publisher=Climate Strategies |date=June 2012 |url=https://climatestrategies.org/wp-content/uploads/2014/11/assessment-with-the-e3mg-model-final-120612.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{pollitt2012modelling, author = {Pollitt, Hector and Summerton, Philip and Thoung, Chris}, title = {{Modelling the Impact of Policy Interventions on Carbon Leakage}}, institution = {Climate Strategies}, year = {2012}, month = jun, url = {https://climatestrategies.org/wp-content/uploads/2014/11/assessment-with-the-e3mg-model-final-120612.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }