Search Climate Insights Directory

The research paper evaluates nine climate policy scenarios to determine the most effective way to address carbon leakage in the EU ETS. Using the CASE II model, it compares full auctioning against various border adjustment (BA) and output-based allocation (OB) strategies. The findings suggest that while full auctioning leads to a leakage ratio of 10%, border adjustments are the most efficient at reducing this ratio, often resulting in negative leakage (spillovers) where emissions in the rest of the world actually decrease. Output-based allocations also reduce leakage but are less efficient than border adjustments and can lead to higher carbon prices.