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The report argues that RGGI's design, which caps emissions only for power plants within participating states, creates a price advantage for imported electricity from coal-heavy states like West Virginia and Pennsylvania. This 'leakage' is exacerbated by excess capacity in existing coal plants and planned transmission upgrades that facilitate power flow from west to east. The authors suggest that RGGI states should implement retail-level carbon caps, prohibit contracts with high-emission plants, and prioritize transmission projects aligned with climate goals to prevent the expansion of coal-based power.

The report warns that the Regional Greenhouse Gas Initiative (RGGI) risks 'undercutting itself' because it only prices emissions from power plants within its region. This creates an economic incentive for electricity suppliers in RGGI states to import cheaper, carbon-intensive power from coal-producing states like West Virginia and Ohio. The document provides 'carbon math' showing that utilizing excess capacity from 15 existing coal plants could produce pollution 'three and a half times the cuts expected under the initiative,' and that six plants under construction nearby could emit pollution equal to '140 percent of RGGI’s reductions.' To prevent this 'leak,' the authors suggest capping the entire portfolio of local electricity suppliers, limiting contracts with polluting plants, and requiring suppliers to account for emissions from electricity produced outside the region.

The document presents a portfolio of 2008 research by Climate Strategies, focusing on the EU ETS, the Clean Development Mechanism (CDM), and G8 climate opportunities. Key analyses include the risks of carbon leakage in industrial sectors, the underperformance of CDM projects in terms of certified emission reductions, and the economic rationale for transitioning from free allowance allocation to auctioning in the EU ETS. It also includes the Eliasch Review on financing global forests and a study on the development of mandatory emissions trading in Japan.

The report details a workshop on border adjustment mechanisms (BAMs) as a tool to combat carbon leakage and transition from free allowance allocation to full auctioning of carbon permits. It argues that BAMs should be limited to a narrow set of carbon-intensive commodities (1-2% of GDP) to avoid becoming protectionist 'sticks' or non-tariff trade barriers. The discussion explores implementation options, such as basing adjustments on 'best available technology' or 'average domestic production', and suggests international coordination to define eligible products, harmonise procedures, and provide flexibility for least developed countries.

The report argues that auctioning emissions allowances in the EU ETS is superior to free allocation because it removes price signal distortions, prevents windfall profits, and generates public revenue for climate action and social compensation. While carbon leakage is a primary concern for a small number of energy-intensive manufacturing sub-sectors, the authors find that leakage in the power sector is unlikely due to limited interconnection capacity and long investment cycles. The report recommends a simple, high-frequency, uniform-price auction design and suggests that leakage be addressed through targeted State Aid or border adjustments rather than broad free allocation. Additionally, it highlights that auction revenues can mitigate the regressive nature of carbon pricing by supporting low-income households.

The document examines the economic rationale for auctioning emissions allowances in the EU ETS, arguing that free allocation distorts carbon price signals and creates windfall profits. It suggests that auctioning provides a more transparent framework for low-carbon investment and generates public revenue to support poor households and innovation. While acknowledging carbon leakage as a concern, the report asserts it affects only a narrow range of sectors and can be addressed through targeted State Aid or border adjustments rather than broad free allocation. For the power sector, the report finds no serious leakage concerns and recommends full auctioning. It proposes a simple auction design using single-round, sealed-bid auctions with a uniform market-clearing price.

The document analyzes Japan's transition from voluntary climate instruments, such as the Keidanren Voluntary Action Plan and the Japanese Voluntary Emissions Trading Scheme (JVETS), toward a mandatory ETS. It compares proposals from the Ministry of Environment (MoE) and the Ministry of Economy, Trade and Industry (METI), noting that the use of intensity-based targets and lenient penalties in some proposals could hinder direct bilateral linking with more stringent systems like the EU ETS. The paper concludes that while direct links are unlikely before 2013, indirect links via the Clean Development Mechanism (CDM) will remain primary until a mandatory system with absolute targets is established.

The report identifies a small number of German industrial sectors—specifically basic iron and steel, fertilizers and nitrogen compounds, aluminium and aluminium products, paper and paperboard, and other basic inorganic chemicals—that face both high carbon-related costs and high international trade intensity. It argues that these sectors are most susceptible to competitiveness distortions and carbon leakage. The analysis distinguishes between direct costs (emissions from production) and indirect costs (increased electricity prices), noting that for some sectors, indirect costs are the primary burden. The document also evaluates various policy mechanisms to mitigate these effects, such as free allocation of allowances, border tax adjustments, and sectoral agreements.

The document examines two types of standards used to mitigate climate change: product-based energy performance standards and labels, and standards based on processes and production methods (PPMs). It argues that while product standards are highly cost-effective and widely used to correct market failures, PPM-based measures are more controversial in trade law due to concerns over protectionism and impacts on developing countries. The authors advocate for international harmonization of testing and certification procedures and increased technical and financial assistance for Southern exporters to ensure climate goals do not create unfair trade barriers.

The document examines border carbon adjustments (BCAs) as a tool to level the playing field between domestic producers facing climate costs and foreign producers who do not. It identifies key vulnerable sectors—steel, aluminum, paper, chemicals, and cement—and analyzes the significant legal hurdles under WTO rules, specifically the national treatment and most-favoured nation principles. The author argues that for a BCA to be WTO-legal, it would require complex firm-by-firm carbon accounting and a prior good-faith effort toward multilateral agreements. Furthermore, the paper warns that BCAs could be perceived as 'eco-imperialism' and might undermine international climate negotiations, particularly with developing countries like China.

The document defines embodied carbon as the CO2 emitted throughout a product's manufacturing process and discusses the tension between production-based and consumption-based accounting in climate agreements. It evaluates measurement tools like Life-Cycle Assessment (LCA) and ecological footprint analysis, noting significant data gaps and methodological challenges. The paper highlights how embodied carbon affects competitiveness and the potential for trade measures, such as border carbon adjustments, while questioning their compatibility with non-discrimination principles in multilateral trade law.

The paper analyzes two types of standards used to mitigate climate change: product-based energy performance standards and labels, and standards based on processes and production methods (PPMs). It argues that energy performance standards are highly cost-effective and should be supported by trade regimes, while PPM-based measures, though more controversial in trade law, can be justified under GATT general exceptions if applied fairly and transparently. The authors emphasize the need for international harmonization of testing procedures and increased technical and financial assistance for developing country exporters to meet these standards.

The paper argues that the EU cement sector is more exposed to carbon leakage than generally assumed, particularly in coastal regions. Using two models with a CO2 price of 30 €/t, the author finds that short-term import levels in coastal regions would rise from 13% to 25%, with an overall EU leakage rate of 65%. In the long term, EU cement capacity is projected to decline by 13% as imports become more attractive during peak demand. The author concludes that while output-based allocation might mitigate financial pressure, a severe world recession would likely induce a similar industrial restructuring to that of a full auctioning scheme.

The report examines the nexus of trade and climate change, focusing on the liberalization of environmental goods, border carbon adjustments, embodied carbon, intellectual property rights, clean energy investment, and product standards. It argues that while trade policy can facilitate the diffusion of low-carbon technologies, it must be carefully aligned with development goals to avoid creating non-tariff barriers for developing nations. The document highlights the tension between protecting domestic industrial competitiveness and maintaining WTO compliance, particularly regarding processes and production methods (PPMs). It concludes that trade liberalization alone is insufficient and must be complemented by financial assistance, technology transfer, and regulatory frameworks to achieve significant emissions reductions.

The report examines how asymmetric CO2 pricing leads to carbon leakage and competitiveness distortions, particularly in trade-exposed, energy-intensive sub-sectors. It analyzes quantitative tools like 'Value at Stake' and qualitative strategic factors to identify vulnerable industries. The text evaluates four primary policy responses: free allowance allocation, direct state aid, sectoral agreements, and border adjustments/export taxes, weighing their economic efficiency against legal risks under WTO and EU law.

The document evaluates two mechanisms to prevent emissions leakage: output-based allocation and sectoral agreements. It concludes that output-based allocation can reduce leakage if applied to the first tradable intermediary product, but it often undermines incentives for innovation and product substitution. Sectoral agreements are deemed more promising if led by governments rather than voluntary private action, potentially utilizing financial incentives and border adjustments to ensure a level playing field and long-term CO2 price internalization.

The submission argues that the EU ETS is the only credible mechanism for a common carbon price in Europe but requires reform post-2012 to be effective. The authors advocate for a shift from free allocation to auctioning to remove investment distortions and 'early action' problems. To protect low-carbon investments from price volatility, they suggest reserve prices for auctions or put options. While acknowledging carbon leakage, the report asserts it only affects a few specific sub-sectors—such as semi-finished steel and clinker—and suggests that border adjustments or sectoral agreements are preferable to free allocations, which are viewed as a second-best, temporary option.

The report analyzes two primary competitiveness concerns: the 'non-Party problem,' where firms in non-participating nations gain an advantage, and the 'implementation problem,' where domestic policy choices create uneven playing fields. It concludes that while some sectors—particularly energy-intensive ones like aluminium—are vulnerable, overall impacts are often moderate. The report also details the complex interface between the Kyoto Protocol and the WTO, evaluating the legality of border tax adjustments, energy standards, and subsidies, suggesting that most conflicts arise from the design of specific measures rather than inherent treaty contradictions.

The report assesses how the EU ETS affects industrial competitiveness, identifying that while most sectors can profit in the short term through free allowances and cost pass-through, a small number of carbon-intensive subsectors face significant risks. Using UK and German data, the authors develop 'Value at Stake' indicators to screen for exposed activities. The analysis concludes that leakage concerns are concentrated in a few subsectors, particularly cement and blast furnace steel, where high direct emissions and international tradeability create vulnerability. The report argues that free allocation can mitigate these risks but may create perverse incentives, suggesting that targeted policies or harmonized allocation across EU Member States are necessary to maintain economic performance while achieving emission reductions.

The document examines how trade policies influence climate change through scale, composition, technique, and direct effects, and analyzes the legal interactions between WTO law and the UNFCCC/Kyoto Protocol. It also assesses the physical impacts of climate change on trade infrastructure and the competitiveness implications of implementing climate regulations.