CLIMATE POLICY AND INDUSTRIAL COMPETITIVENESS: TEN INSIGHTS FROM EUROPE ON THE EU EMISSIONS TRADING SYSTEM

The report examines the EU ETS, concluding that emissions trading is effective and has modest macroeconomic impacts, though it can create windfall profits and price volatility. It argues that international competitiveness risks are limited to a few carbon-intensive sectors and recommends maximizing auctioning over free allocation to maintain economic efficiency and innovation incentives. The authors caution against unilateral border adjustments, suggesting multilateral arrangements instead to prevent trade disputes and carbon leakage.

• The EU ETS demonstrated that emissions trading is an effective tool for reducing greenhouse gases, with MIT estimates suggesting it cut European emissions by 120–300 million metric tonnes of carbon dioxide (MtCO2) during its first phase, representing up to 5 percent of emissions from covered sectors.
• Macroeconomic impacts of the EU ETS have been significantly lower than initial projections, with costs estimated by the European Commission (2008) at 0.3–0.7 percent of GDP for caps up to 2020.
• Contrary to initial industrial opposition, all participating industrial sectors in Europe have in aggregate profited from the EU ETS to date, largely due to the ability to pass carbon costs through to prices while receiving free allowances.
• International competitiveness risks are concentrated in a small number of carbon-intensive, trade-exposed sectors—specifically iron and steel, aluminum, nitrogen fertilizers, cement and lime, basic inorganic chemicals, and pulp and paper—which together account for less than 0.5 percent of GDP in the U.K.
• Free allocation of allowances can lead to economic inefficiencies, including windfall profits and perverse incentives that may discourage plant closures or low-carbon investments.
• The EU ETS evolved through a sequential phase-based design, which allowed policymakers to correct early mistakes in cap-setting and allocation, leading to a shift toward centralized allocation and increased auctioning in Phase III.
• Unilateral border adjustments are viewed as risky because they may be perceived as disguised trade protectionism and could disrupt multilateral trade agreements or conflict with WTO principles.
• Carbon price volatility in the EU ETS was driven by incomplete data, intrinsic problems in emission projections, and the influence of other energy efficiency and renewable energy policies.

APA

GRUbb, M., bREwER, T. L., SATO, M., hEILMAYR, R., & FAzEkAS, D. (2009). CLIMATE POLICY AND INDUSTRIAL COMPETITIVENESS: TEN INSIGHTS FROM EUROPE ON THE EU EMISSIONS TRADING SYSTEM. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/climate-strategies-gmf-paper-3aug09.pdf

Chicago

GRUbb, MIChAEL, ThOMAS L. bREwER, MISATO SATO, RObert hEILMAYR, and DORA FAzEkAS. CLIMATE POLICY AND INDUSTRIAL COMPETITIVENESS: TEN INSIGHTS FROM EUROPE ON THE EU EMISSIONS TRADING SYSTEM. Climate Strategies, 2009. https://climatestrategies.org/wp-content/uploads/2014/11/climate-strategies-gmf-paper-3aug09.pdf.

Wikipedia

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BibTeX

@techreport{grubb2009climate, author = {GRUbb, MIChAEL and bREwER, ThOMAS L. and SATO, MISATO and hEILMAYR, RObert and FAzEkAS, DORA}, title = {{CLIMATE POLICY AND INDUSTRIAL COMPETITIVENESS: TEN INSIGHTS FROM EUROPE ON THE EU EMISSIONS TRADING SYSTEM}}, institution = {Climate Strategies}, year = {2009}, url = {https://climatestrategies.org/wp-content/uploads/2014/11/climate-strategies-gmf-paper-3aug09.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }