Inclusion of Consumption of carbon intensive materials in emissions trading – An option for carbon pricing post-2020 Report

The report proposes 'Inclusion of Consumption' (IoC) as a way to ensure carbon prices are reflected in the cost of materials like steel and cement, which are currently shielded by free allowance allocations in emissions trading schemes. By adding a charge to the consumption of these materials based on benchmarks, the IoC aims to incentivize material efficiency and innovation without harming competitiveness. The authors argue that IoC is administratively feasible, compliant with WTO law, and qualifies as an environmental regulation under EU law.

• Free allowance allocation in emissions trading schemes reduces the effectiveness of carbon pricing because it dampens the pass-through of costs to consumers, thereby muting incentives for material efficiency and the adoption of breakthrough technologies.
• The Inclusion of Consumption (IoC) mechanism restores the carbon price signal by adding a charge to the consumption of carbon-intensive materials based on the emissions of an additional unit of primary production, with revenues directed to national trust funds for climate action.
• Under the IoC model, material producers would receive free allowances based on the best available technology benchmarks to protect against carbon leakage, meaning they only pay for their own relative inefficiency.
• An estimated annual revenue of 17 billion Euro could be raised in Europe at a carbon price of €30/t CO2 by applying IoC to steel, aluminum, plastics, paper, and cement.
• The IoC mechanism is considered low-risk for fraud due to the high transport costs of heavy materials, the lack of cash reimbursements (preventing 'carousel fraud'), and the uniformity of charges across EU Member States.
• The report concludes that IoC is compatible with World Trade Organization (WTO) law because it treats domestic and imported materials equally and does not distinguish between production methods.
• IoC is characterized as an environmental regulation rather than a fiscal measure, meaning it could be implemented in the EU via qualified majority voting in the EU Council.

APA

Neuhoff, K., Ismer, R., Acworth, W., Ancygier, A., Fischer, C., Haussner, M., Kangas, H.-L., Kim, Y.-G., Munnings, C., Owen, A., Pauliuk, S., Sartor, O., Sato, M., Stede, J., Sterner, T., Tervooren, M., Tusveld, R., Wood, R., Xiliang, Z., ... Zipperer, V. (2016). Inclusion of Consumption of carbon intensive materials in emissions trading – An option for carbon pricing post-2020 Report. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2016/10/CS-Inclusion-of-Consumption-Report.pdf

Chicago

Neuhoff, Karsten, Roland Ismer, William Acworth, Andrzej Ancygier, Carolyn Fischer, Manuel Haussner, Hanna-Liisa Kangas, et al. Inclusion of Consumption of carbon intensive materials in emissions trading – An option for carbon pricing post-2020 Report. Climate Strategies, 2016. https://climatestrategies.org/wp-content/uploads/2016/10/CS-Inclusion-of-Consumption-Report.pdf.

Wikipedia

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BibTeX

@techreport{neuhoff2016inclusion, author = {Neuhoff, Karsten and Ismer, Roland and Acworth, William and Ancygier, Andrzej and Fischer, Carolyn and Haussner, Manuel and Kangas, Hanna-Liisa and Kim, Yong-Gun and Munnings, Clayton and Owen, Anne and Pauliuk, Stephan and Sartor, Oliver and Sato, Misato and Stede, Jan and Sterner, Thomas and Tervooren, Michael and Tusveld, Ruud and Wood, Richard and Xiliang, Zhang and Zetterberg, Lars and Zipperer, Vera}, title = {{Inclusion of Consumption of carbon intensive materials in emissions trading – An option for carbon pricing post-2020 Report}}, institution = {Climate Strategies}, year = {2016}, month = may, url = {https://climatestrategies.org/wp-content/uploads/2016/10/CS-Inclusion-of-Consumption-Report.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }