TACKLING LEAKAGE IN A WORLD OF UNEQUAL CARBON PRICES

The report examines carbon leakage—the migration of emissions to regions with laxer carbon pricing—specifically focusing on the EU ETS Phase III. It criticizes the European Commission's broad identification of 164 sectors at risk, arguing that the criteria used were too simplistic and failed to account for the 2008 economic recession or the actual auctioning rates. The authors suggest that leakage risk is actually concentrated in a few sectors, including steel, cement, and aluminium, and recommend tailored policy responses such as border adjustments for cement and investment subsidies for aluminium, rather than a one-size-fits-all approach of free allowance allocation.

• Carbon leakage occurs when emissions are shifted to other world regions through increased imports or the relocation of trade-exposed, energy-intensive industries to countries without equivalent carbon constraints.
• The European Commission identified 164 out of 258 manufacturing subsectors as being at risk of carbon leakage based on cost impact and trade intensity thresholds.
• The report argues that the European Commission's list of at-risk sectors is too long because it relied on a single trade intensity threshold of 30% or higher, which included 118 sectors that did not have high cost impacts.
• Economic modelling suggests that carbon leakage risk is actually confined to a small set of sectors: steel, cement, some basic chemicals, aluminium, pulp and paper, and refineries.
• Free allowance allocation, the EU's preferred tool, can create perverse incentives such as windfall profits and may encourage firms to import emissions-intensive intermediate products like clinker in the cement sector.
• The CASE II model indicates that under a scenario of full auctioning in 2016, leakage rates would be 39% for steel, 21% for aluminium, and 16% for clinker.
• The report recommends sector-specific policies: border adjustments for the cement sector, investment subsidies for the aluminium sector, and free allocation as an interim measure for the steel sector until 2020.
• The European Commission's leakage analysis is criticized for assuming 100% auctioning for manufacturing sectors, which contradicts the actual Phase III Directive where auctioning starts at 20% in 2013 and rises to 70% by 2020.

APA

Dröge, S., & Cooper, S. (2010). TACKLING LEAKAGE IN A WORLD OF UNEQUAL CARBON PRICES. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/cs-greens-group-final-160610.pdf

Chicago

Dröge, Susanne, and Simone Cooper. TACKLING LEAKAGE IN A WORLD OF UNEQUAL CARBON PRICES. Climate Strategies, 2010. https://climatestrategies.org/wp-content/uploads/2014/11/cs-greens-group-final-160610.pdf.

Wikipedia

{{cite report |last1=Dröge |first1=Susanne |last2=Cooper |first2=Simone |title=TACKLING LEAKAGE IN A WORLD OF UNEQUAL CARBON PRICES |publisher=Climate Strategies |date=May 2010 |url=https://climatestrategies.org/wp-content/uploads/2014/11/cs-greens-group-final-160610.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{drge2010tackling, author = {Dröge, Susanne and Cooper, Simone}, title = {{TACKLING LEAKAGE IN A WORLD OF UNEQUAL CARBON PRICES}}, institution = {Climate Strategies}, year = {2010}, month = may, url = {https://climatestrategies.org/wp-content/uploads/2014/11/cs-greens-group-final-160610.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }