INTERNATIONAL STRATEGIES TO ADDRESS COMPETITIVENESS CONCERNS

The report examines how asymmetric CO2 pricing leads to carbon leakage and competitiveness distortions, particularly in trade-exposed, energy-intensive sub-sectors. It analyzes quantitative tools like 'Value at Stake' and qualitative strategic factors to identify vulnerable industries. The text evaluates four primary policy responses: free allowance allocation, direct state aid, sectoral agreements, and border adjustments/export taxes, weighing their economic efficiency against legal risks under WTO and EU law.

• The 'Value at Stake' metric, which compares CO2-induced cost increases to gross value added, is a robust quantitative indicator for identifying vulnerable sub-sectors. Analysis of German and UK data shows that CO2 emissions are concentrated in specific sub-sectors rather than across entire industrial sectors.
• Certain commodities are highly susceptible to competitiveness distortions due to high CO2 intensity, low value added, and product homogeneity. These include semi-finished steel, clinker (for cement), lime, basic glass, pulp, and basic chemicals such as ammonia and those from steam crackers (ethylene, propylene, butene, and aromatics).
• Aluminium and copper are identified as the primary substances exposed to competitiveness risks specifically driven by electricity price increases, whereas chlorine is less exposed due to transport restrictions on hazardous substances.
• Free allowance allocation can lead to 'domestic leakage' by preventing product prices from reflecting CO2 externality costs, which reduces the incentive for consumers to substitute CO2-intensive products with lower-carbon alternatives.
• Border adjustment mechanisms based on the 'best available technology' (BAT) emission rate are suggested to avoid discrimination against foreign producers and minimize legal risks under GATT's most favoured nation and national treatment clauses.
• Voluntary sectoral agreements are unlikely to effectively address leakage in the short to mid-term because they struggle to expose firms to similar CO2 costs and are prone to breaking during economic downturns when low global demand drives prices down.

APA

NEUHOFF, K., & DROEGE, S. (2007). INTERNATIONAL STRATEGIES TO ADDRESS COMPETITIVENESS CONCERNS. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/cs-berlin-workshopreport-070706.pdf

Chicago

NEUHOFF, KARSTEN, and SUSANNE DROEGE. INTERNATIONAL STRATEGIES TO ADDRESS COMPETITIVENESS CONCERNS. Climate Strategies, 2007. https://climatestrategies.org/wp-content/uploads/2014/11/cs-berlin-workshopreport-070706.pdf.

Wikipedia

{{cite report |last1=NEUHOFF |first1=KARSTEN |last2=DROEGE |first2=SUSANNE |title=INTERNATIONAL STRATEGIES TO ADDRESS COMPETITIVENESS CONCERNS |publisher=Climate Strategies |date=6 July 2007 |url=https://climatestrategies.org/wp-content/uploads/2014/11/cs-berlin-workshopreport-070706.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{neuhoff2007international, author = {NEUHOFF, KARSTEN and DROEGE, SUSANNE}, title = {{INTERNATIONAL STRATEGIES TO ADDRESS COMPETITIVENESS CONCERNS}}, institution = {Climate Strategies}, year = {2007}, month = jul, url = {https://climatestrategies.org/wp-content/uploads/2014/11/cs-berlin-workshopreport-070706.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }