Impact of the EU ETS Exemptions on Economic Competitiveness

Authors: Dora Grunwald, Meloria Meschi and Fabien Roques

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, FTI-CL Energy found 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.