Impact of the EU ETS Exemptions on Economic Competitiveness

A study of the interplay of carbon prices and economic competitiveness

Economic & Financial Consulting

March 31, 2014

Arguing that carbon costs would threaten their competitiveness, a vast majority of the manufacturing sectors, accounting for 95% of all industrial carbon emissions, receive exemptions from the EU Emission Trading System (ETS). However, competitiveness is a whole economy issue and therefore it is crucial to understand the EU-wide costs and benefits of carbon leakage exemptions. Modelling a range of carbon prices and auctioning rates, we find that phasing out special treatment for energy-intensive industries could benefit the European economy as a whole and result in a net increase in European GDP and jobs. The benefits of saved subsidies and a more efficient EU ETS outweigh the sizeable negative direct effects on the profitability of specific industrial sectors such as steel and cement.

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