Addressing leakage concerns

The paper uses the CASE II model to analyze how different EU ETS allocation modes and emissions targets (-21% to -34%) affect carbon leakage and production in the cement, aluminium, steel, and electricity sectors. It finds that while output-based allocation (OBA) and border adjustments (BA) can mitigate leakage, they create different trade-offs regarding production levels and electricity prices. The author concludes that carbon leakage must be readdressed if the EU raises its ambition, as the impacts vary significantly by sector and allocation method.

• Increasing the EU's emissions reduction target beyond 20% necessitates a re-evaluation of carbon leakage strategies because the risks differ across industrial sectors.
• There is a systemic trade-off where free allowance allocations for industrial sectors lead to higher emissions mitigation requirements and increased prices in the electricity sector.
• Auctioning with border adjustment (BA) is the most effective method for limiting carbon leakage across all sectors and helps limit electricity price increases, though it leads to lower European production due to reduced domestic consumption.
• Output-based allocation (OBA) effectively limits both carbon leakage and production loss, but it fails to incentivize cement firms to use CO2-free substitutes for clinker.
• Emissions-based allocation (EBA) is less effective at limiting leakage than OBA; in the cement sector, EBA can actually increase leakage by boosting clinker imports.
• The aluminium sector is particularly vulnerable to indirect emissions costs from rising electricity prices, and free allowances for direct emissions (EBA/OBA) do not effectively mitigate its leakage risk.
• The use of international credits can soften the impact of more stringent emissions constraints by lowering the CO2 price, but this effect is limited.
• Higher economic growth rates increase the required emissions reductions to meet targets, which in turn raises the CO2 price and the associated risk of carbon leakage.

APA

Monjon, S. (2011). Addressing leakage concerns. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/cs-eu-beyond-20-carbon-leakage-cired-final-27june.pdf

Chicago

Monjon, Stéphanie. Addressing leakage concerns. Climate Strategies, 2011. https://climatestrategies.org/wp-content/uploads/2014/11/cs-eu-beyond-20-carbon-leakage-cired-final-27june.pdf.

Wikipedia

{{cite report |last1=Monjon |first1=Stéphanie |title=Addressing leakage concerns |publisher=Climate Strategies |date=June 2011 |url=https://climatestrategies.org/wp-content/uploads/2014/11/cs-eu-beyond-20-carbon-leakage-cired-final-27june.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{monjon2011addressing, author = {Monjon, Stéphanie}, title = {{Addressing leakage concerns}}, institution = {Climate Strategies}, year = {2011}, month = jun, url = {https://climatestrategies.org/wp-content/uploads/2014/11/cs-eu-beyond-20-carbon-leakage-cired-final-27june.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }