Impacts of Emissions Trading on Energy Intensive Industries (EII) and Industrial Restructuring – Lessons learned from EU ETS for South Korea

The document examines the evolution of the EU ETS through its first three phases, focusing on how carbon pricing affects the international competitiveness of energy-intensive industries. It analyzes the phenomenon of 'carbon leakage'—where production relocates to countries with laxer environmental rules—and argues that while this risk exists for specific sectors like steel and cement, it is often mitigated by free allowance allocations and broader economic restructuring trends. The author suggests that for countries like South Korea, the EU experience shows that the risk of leakage is manageable if policy focuses on the most vulnerable sectors and the decarbonization of the energy mix.

• The EU ETS has evolved through three phases, moving from a pilot phase (2005-2007) with high free allocations to a Third Phase (2013-2020) where auctioning is the default allocation method, although free allocation remains for sectors at risk of carbon leakage.
• Carbon leakage occurs when rising CO2 costs make domestic business models uncompetitive, leading to increased imports or the relocation of production to countries with less stringent environmental constraints.
• The most exposed industrial sectors include organic chemistry and the steel, glass, cement, and paper industries, particularly those with low 'pass-through' potential—the inability to pass carbon costs to customers.
• The EU uses specific criteria to identify sectors at risk of carbon leakage, including a cost impact of at least 5% of Gross Value Added combined with a trade intensity of 10% or more, or a cost impact of at least 30%, or a trade intensity of at least 30%.
• There is a significant discrepancy between ex-ante CGE modeling, which can estimate leakage risks up to 75%, and ex-post econometric studies, which generally do not identify real leakage phenomena in historical data.
• The risk of carbon leakage is influenced by a country's energy mix; for example, Poland is more exposed due to its 90% share of coal in the energy mix, whereas France is less exposed due to its dominance of nuclear generation.
• Historical trends in OECD countries suggest that industrial employment declines are often driven by a shift toward capital-intensive models and services rather than solely by energy prices, as seen in the German steel industry where employment fell 76% (1970-2010) while production remained stable or grew.

APA

Bukowski, M. (2013). Impacts of Emissions Trading on Energy Intensive Industries (EII) and Industrial Restructuring – Lessons learned from EU ETS for South Korea. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2016/08/MBukowski-Policy-Brief.pdf

Chicago

Bukowski, Maciej. Impacts of Emissions Trading on Energy Intensive Industries (EII) and Industrial Restructuring – Lessons learned from EU ETS for South Korea. Climate Strategies, 2013. https://climatestrategies.org/wp-content/uploads/2016/08/MBukowski-Policy-Brief.pdf.

Wikipedia

{{cite report |last1=Bukowski |first1=Maciej |title=Impacts of Emissions Trading on Energy Intensive Industries (EII) and Industrial Restructuring – Lessons learned from EU ETS for South Korea |publisher=Climate Strategies |date=November 2013 |url=https://climatestrategies.org/wp-content/uploads/2016/08/MBukowski-Policy-Brief.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{bukowski2013impacts, author = {Bukowski, Maciej}, title = {{Impacts of Emissions Trading on Energy Intensive Industries (EII) and Industrial Restructuring – Lessons learned from EU ETS for South Korea}}, institution = {Climate Strategies}, year = {2013}, month = nov, url = {https://climatestrategies.org/wp-content/uploads/2016/08/MBukowski-Policy-Brief.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }