Climate Change and Competitiveness

The document analyzes how climate policies, particularly the Kyoto Protocol, affect the competitiveness of firms and sectors. It distinguishes between the 'non-Party problem'—where firms in non-participating countries (like the US) gain an advantage—and the 'implementation problem'—where differing national allocation plans within a region (like the EU) create internal imbalances. Using Canada and the EU as case studies, it suggests that while some energy-intensive sectors like aluminum are vulnerable, overall GDP impacts are predicted to be small, and potential negative effects may be offset by technological innovation induced by regulation.

• Competitiveness is most meaningfully analyzed at the firm or sectoral level, defined as 'sustainable profitability – a state that is maintained in a dynamic contest among firms', rather than at the nation-state level where it is often conflated with simple productivity.
• The 'non-Party problem' refers to the risk that firms in countries not subject to carbon constraints, such as the US and large developing countries, will enjoy an 'unfair advantage' over firms in Annex B Parties.
• In Canada, industry associations argue that Kyoto compliance increases operating and capital costs relative to competitors in the US, Mexico, Brazil, Indonesia, South Korea, China, and India, risking market share loss in sectors such as electricity, petroleum refining, steel, chemicals, and automotive production.
• The 'implementation problem' occurs when Annex B Parties use different national plans for allocating emissions reductions, potentially creating 'shifts in competitive advantage' between sectors within a highly integrated market like the EU.
• Sectoral vulnerability to climate policy is determined by three variables: energy intensity (where energy exceeds 30% of production costs, as in aluminum), the ability to pass cost increases to consumers based on the availability of substitutes, and the availability of low-cost abatement opportunities.
• Analysis of the EU's Emissions Trading System (ETS) indicates that 'leakage'—the relocation of industry outside the region—is a primary concern for the aluminum sector due to its global market and high energy costs, though other sectors like steel, pulp and paper, and cement show less concern.
• Some evidence suggests that strong environmental regulation can actually improve competitiveness by driving 'improvements in technology and know-how' that allow firms to meet obligations at a lower cost.

APA

International Institute for Sustainable Development (2005). Climate Change and Competitiveness. https://www.iisd.org/system/files/publications/climate_change_comp.pdf

Chicago

International Institute for Sustainable Development. Climate Change and Competitiveness. 2005. https://www.iisd.org/system/files/publications/climate_change_comp.pdf.

Wikipedia

{{cite report |author=International Institute for Sustainable Development |title=Climate Change and Competitiveness |date=30 March 2005 |url=https://www.iisd.org/system/files/publications/climate_change_comp.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{internationalinstituteforsustainabledevelopment2005climate, author = {{International Institute for Sustainable Development}}, title = {{Climate Change and Competitiveness}}, institution = {International Institute for Sustainable Development}, year = {2005}, month = mar, url = {https://www.iisd.org/system/files/publications/climate_change_comp.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }