TACKLING LEAKAGE IN A WORLD OF UNEQUAL CARBON PRICES

The report examines carbon leakage risks for energy-intensive industries—specifically cement, steel, and aluminium—when facing unequal global carbon prices. It evaluates tools such as free allocation of emission rights and border adjustments, noting that while free allowances can reduce leakage, they may distort carbon price signals and reduce incentives for low-carbon investment. The analysis suggests that border adjustments are particularly suitable for the cement sector due to the homogeneity of production technologies and carbon intensity across regions.

• Carbon price differentials and subsequent leakage challenges are expected to persist in the mid- to long-term due to the slow establishment and difficult linking of national carbon tax systems or emissions trading schemes.
• Simulations indicate that the cement, steel, and aluminium sectors are likely to experience carbon leakage if the EU ETS implements full auctioning of emission rights after 2013, though the level of exposure varies by sector.
• The effectiveness of leakage remedies depends on sector-specific characteristics such as vertical integration, capacity utilization, and direct or indirect costs; ignoring these can result in a failure to both provide a carbon price signal for low-carbon production and prevent leakage.
• Free allocation of certificates or output-based rebates can reduce leakage but create a trade-off by distorting the carbon price, which lowers the incentive for industries to invest in low-carbon technology or efficiency.
• Border adjustments are identified as the most effective short-to-medium-term unilateral tool for the cement sector because of the global homogeneity of best available technologies and consistent carbon intensity across producing regions.
• In the cement sector, the absence of policy measures to address carbon cost differentials could lead to carbon leakage-to-reduction ratios between 40% and 73%.

APA

Dröge, S., van Asselt, H., Brewer, T., Grubb, M., Ismer, R., Kameyama, Y., Mehling, M., Monjon, S., Neuhoff, K., Quirion, P., Schumacher, K., Mohr, L., Suwala, W., Takamura, Y., Voituriez, T., & Wang, X. (2009). TACKLING LEAKAGE IN A WORLD OF UNEQUAL CARBON PRICES. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/cs-leakage-exec-sum-oct09.pdf

Chicago

Dröge, Susanne, Harro van Asselt, Thomas Brewer, Michael Grubb, Roland Ismer, Yasuko Kameyama, Michael Mehling, et al. TACKLING LEAKAGE IN A WORLD OF UNEQUAL CARBON PRICES. Climate Strategies, 2009. https://climatestrategies.org/wp-content/uploads/2014/11/cs-leakage-exec-sum-oct09.pdf.

Wikipedia

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BibTeX

@techreport{drge2009tackling, author = {Dröge, Susanne and van Asselt, Harro and Brewer, Thomas and Grubb, Michael and Ismer, Roland and Kameyama, Yasuko and Mehling, Michael and Monjon, Stephanie and Neuhoff, Karsten and Quirion, Philippe and Schumacher, Katja and Mohr, Lennart and Suwala, Wojciech and Takamura, Yukari and Voituriez, Tancrede and Wang, Xin}, title = {{TACKLING LEAKAGE IN A WORLD OF UNEQUAL CARBON PRICES}}, institution = {Climate Strategies}, year = {2009}, month = oct, url = {https://climatestrategies.org/wp-content/uploads/2014/11/cs-leakage-exec-sum-oct09.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }