International Industrial Competitiveness, Carbon Leakage and Approaches to Carbon Pricing

The report examines how unilateral carbon pricing leads to carbon leakage—where emissions are shifted to foreign locations—across energy-intensive industries (EII) such as steel, cement, and chemicals. It evaluates the effectiveness of various policy remedies, including border adjustments and output-based free allocations, across different regional contexts. Findings indicate that while the EU can mitigate leakage from a 30% reduction target at moderate cost, a mandatory Japanese ETS would significantly impact steel and cement production. In China, a carbon price of 100 Yuan/t CO2 would most affect ferrous metals, basic chemicals, refining, and cement, potentially serving as a tool to reduce carbon intensity and restrain exports during high growth periods.

• Carbon leakage occurs when unilateral carbon pricing causes industrial activities, including process and indirect emissions from electricity, to shift to foreign locations through operational changes or relocation of production sites.
• In the European Union, a move to a 30% unilateral CO2-reduction target by 2020 would likely increase carbon prices and cause output declines in the steel and cement sectors, though border adjustments could effectively reduce leakage in cement and partially in steel.
• A mandatory emissions trading scheme (ETS) in Japan would likely cause significant carbon leakage in the steel and cement sectors; for steel, output-based free allocation is the most effective mitigation tool, whereas for cement, full border adjustments are more effective.
• A simulated carbon price of 100 Yuan/t CO2 in China would most heavily impact ferrous metals, basic chemicals, refining, and non-metal mineral products (cement), with nine sectors meeting EU ETS carbon leakage cost criteria for compensation.
• Energy-intensive industries (EII) are highly sensitive to the carbon intensity of electricity, as seen in the aluminium sector where indirect emissions can account for up to 75% of overall emissions, making locations with low-carbon energy sources more competitive.
• The ability of industries to pass through carbon costs depends on product elasticity and market structure; for example, coastal cement plants are more exposed to leakage than landlocked ones due to lower shipping costs for imported substitutes.

APA

Droege, S. (2012). International Industrial Competitiveness, Carbon Leakage and Approaches to Carbon Pricing. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2014/11/cs-synthesis-report-leakage-competitiveness-final.pdf

Chicago

Droege, Susanne. International Industrial Competitiveness, Carbon Leakage and Approaches to Carbon Pricing. Climate Strategies, 2012. https://climatestrategies.org/wp-content/uploads/2014/11/cs-synthesis-report-leakage-competitiveness-final.pdf.

Wikipedia

{{cite report |last1=Droege |first1=Susanne |title=International Industrial Competitiveness, Carbon Leakage and Approaches to Carbon Pricing |publisher=Climate Strategies |date=November 2012 |url=https://climatestrategies.org/wp-content/uploads/2014/11/cs-synthesis-report-leakage-competitiveness-final.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{droege2012international, author = {Droege, Susanne}, title = {{International Industrial Competitiveness, Carbon Leakage and Approaches to Carbon Pricing}}, institution = {Climate Strategies}, year = {2012}, month = nov, url = {https://climatestrategies.org/wp-content/uploads/2014/11/cs-synthesis-report-leakage-competitiveness-final.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }