This paper is a literary based economical analysis of the problem carbon leakage, its extent, arising consequences and possible counter strategies.
Today plenty of research on carbon leakage is available. It includes, to name just a few, analyses on influences and extent of carbon leakage (Aichele (2013), Paroussos et.al., (2014), Aiginger, (2013)) and research of first and second-best solutions and possible counter strategies (Aichele (2013), Aroyo-Curras et.al., (2013), Görlach, et.al., (2008)). The purpose of this paper is to investigate extent and counter strategies of carbon leakage.
The current climate development is illustrated in the first passage. A brief description is important for efficient subsequent analysis. Following this summary, two major climate actions are introduced in chapter two: the Kyoto Protocol and the European Emissions Trading System. As a consequence of the implementation of unilateral climate approaches, the problem Carbon Leakage arises. When industrialised countries and specifically Europe introduces strict emission standards, costs of production of emission intensive industries rise. As a result of policies like carbon taxation, or the European emissions’ pricing system those companies relocate parts of their sectors in countries without high standards. As a consequence the overall emissions might increase.
After substantiating the dilemma of efforts concerning climate actions, the actual extent of carbon leakage will be illustrated in chapter three. For this, Aichele (2013) is the main source for empirical proof.
Arguments to internalise carbon leakage efficiently are investigated in chapter 4 and 5. Solving the carbon leakage problem will not thoroughly contribute to actual climate goals of the European Union. This paper highlights the importance to concentrate not just on this problem but to tackle down emissions’ reduction and carbon leakage in Europe at the same time. Hence several possibilities of policy tools are introduced.
It is substantiated that they might work best if you combine them, because each has advantages and disadvantages and addresses different problems. As long as no multilateral approach is implemented, WTO conform border tax adjustments, carbon taxation of domestic production and fostering investment incentives for new energy saving production are illustrated as one possibility to internalise both carbon leakage and an actual reduction of emissions.
Table of Contents
1. Emissions: Facts, Development and Consequences
2. Effort to reduce emissions
2.1 Kyoto Protocol
2.2 Europe’s Climate Action
3. Extent and consequences of Carbon Leakage
3.1 Carbon Leakage – Reasons of emergence
3.2 Consequences and extent of Carbon leakage
4. Counterstrategies against Carbon Leakage
4.1 Multilateral approaches
4.2 Unilateral Approaches
4.2.1 Free allowances of emission rights
4.2.2 Border Tax Adjustments
4.2.3 Carbon Taxation
5. A complementing incentive scheme
6. Concluding Remarks
Research Objectives and Core Themes
The primary objective of this seminar paper is to analyze the economic phenomenon of carbon leakage, specifically examining its extent, its implications for European climate policy, and potential strategies to mitigate it while fostering sustainable industrial growth.
- Analysis of carbon leakage and its impact on the effectiveness of European climate regulations.
- Evaluation of unilateral versus multilateral policy approaches to climate change.
- Investigation of specific policy tools like emission allowances, border tax adjustments, and carbon taxation.
- Development of a complementing incentive scheme to promote green technology and sustainable competitiveness.
Excerpt from the Book
3.1 Carbon Leakage – Reasons of emergence
First, Carbon leakage is a consequence of the companies’ attempt to stay competitive, when emission prices and consequently costs increase.
Aiginger defines carbon leakage as follows: „If industrialised countries and specifically Europe sets high standards or prohibit, regulate or tax emissions, production of emission intensive industries would relocate to countries with less resource efficiency, thus increasing the overall emissions.” (Aiginger, 2013, p.7)
With the implemented regulations, like EU-ETS, companies are exposed to higher prices since the ambitious goals are solely achievable with an increase in carbon prices, up to 250Eur/t. (Aiginger, 2013, p.6) The price of emissions directly leads to higher productions costs. In consequence, increasing expenses of production in the European Union enhances carbon leakage. (Görlach, et.al., 2008, p.11) The risk of leakage is especially high in energy intensive sectors and in firms with high exposure to foreign trade and international competition.
In order to stay competitive - considering the increase in costs, they externalise parts of their energy intense sectors. A problem arises, when firms transfer their energy intensive sector to countries with laxer constraints on greenhouse gas emissions and if the overall emissions increase on that account. As stated above, almost half of Europe’s industrial sectors belong to Group III. This induces that carbon leakage could be quite a risk. (Drnek, 2015, p.4f.)
Summary of Chapters
1. Emissions: Facts, Development and Consequences: This chapter provides an overview of the current status of global CO2 emissions and the severe environmental consequences of continued climate change.
2. Effort to reduce emissions: This section introduces key climate policy frameworks, namely the Kyoto Protocol and the European Emissions Trading System (EU ETS), and their respective mechanisms for reducing greenhouse gas emissions.
3. Extent and consequences of Carbon Leakage: This chapter explores the causes and empirical evidence of carbon leakage, discussing how industrial relocation impacts global emission levels and the competitiveness of European firms.
4. Counterstrategies against Carbon Leakage: This section evaluates various policy strategies, ranging from multilateral agreements to unilateral tools like border tax adjustments and carbon taxation, to mitigate the carbon leakage problem.
5. A complementing incentive scheme: This chapter proposes a comprehensive strategy combining existing policy tools with new incentives for green investments to foster innovation and sustainable industrial growth.
6. Concluding Remarks: The final chapter summarizes the findings, emphasizing the need for combining unilateral climate efforts with innovation-focused industrial policy to achieve long-term climate and competitiveness goals.
Keywords
Carbon Leakage, European Emissions Trading System, Climate Change, Greenhouse Gas Emissions, Kyoto Protocol, Industrial Policy, Sustainable Growth, Border Tax Adjustments, Carbon Taxation, Energy Efficiency, Green Technology, Competitiveness, Environmental Regulations, Emission Allowances, Sustainability.
Frequently Asked Questions
What is the core focus of this research paper?
The paper provides a literary-based economic analysis of the carbon leakage problem, examining how stricter emission standards in industrialized nations can lead to industrial relocation and potentially higher global emissions.
What are the primary themes discussed?
Key themes include the impact of European climate policies (like EU ETS) on industrial competitiveness, the mechanisms behind carbon leakage, and the design of effective counterstrategies, including both regulatory and incentive-based policy instruments.
What is the main research objective?
The goal is to understand the extent of carbon leakage and to propose a multi-faceted approach to climate policy that internalizes these risks while simultaneously supporting emissions reduction and European industrial innovation.
Which scientific methods does the author utilize?
The paper is a literary-based economic analysis, synthesizing existing empirical research, climate impact studies, and economic models (such as those from Aichele, Aiginger, and others) to evaluate policy efficacy.
What content is covered in the main body of the paper?
The main body systematically progresses from the current state of global emissions to the specific mechanics of carbon leakage within the EU, followed by a comparative assessment of multilateral and unilateral policy strategies and a final proposal for an incentive-based transition to green technologies.
Which keywords best describe this study?
The study is best characterized by terms such as Carbon Leakage, EU ETS, Industrial Policy, Green Technology, and Sustainability.
How does the Kyoto Protocol relate to carbon leakage?
The paper argues that the partial coverage of the Kyoto Protocol and the resulting heterogeneity in global climate regulations provide incentives for companies to relocate to countries with fewer restrictions, thereby exacerbating the carbon leakage phenomenon.
Why are "free allowances" considered a controversial strategy?
While free allowances protect the competitiveness of emission-intensive industries, they also create a disincentive for companies to invest in energy-saving technologies, as they are not fully exposed to the cost of their emissions.
What role does the World Trade Organization (WTO) play in the proposed solutions?
The WTO is discussed in the context of border tax adjustments; the author notes that while such measures could address leakage, they face significant implementation challenges and legal risks regarding international non-discrimination and trade agreements.
- Arbeit zitieren
- Marina Steininger (Autor:in), 2015, Carbon Leakage. Ausmaß und Gegenstrategie, München, GRIN Verlag, https://www.hausarbeiten.de/document/311107
