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ETS EP Roundtable Schyns 10 06 08

VIEWS: 2 PAGES: 4

									     Risk and reality of carbon leakage

                  Observations on the reports of
                       Climate Strategies
                               &
                          Carbon Trust

European Parliament EU ETS roundtable
10 June 2008
Contribution Vianney Schyns
IFIEC Europe
Climate Strategies
  Impact on Gross Value Added at € 20/ton CO2 and € 10/MWh:




  Key observations
  • Sectors with GVA impact > 4% are … all EU ETS sectors + some others
  • Impact triples at expected higher prices, e.g. Deutsche Bank € 67/ton by 2020
  • Study is not conclusive whether leakage will not occur, on the contrary …
  • Leakage is likely for all sectors, at higher CO2-prices
Carbon Trust
 Carbon price signal: lower product demand (price elasticity), higher demand
 of substitutes, fewer exports & more imports = carbon leakage:




  Key observations
  • Economists argue degree of price elasticity
  • Carbon Trust modelled leakage >> lower demand
  • This is more than “a few percentage points”
  Report mentions all EU ETS sectors and signals either likelihood of leakage
  or major uncertainties
    Climate Strategies & Carbon Trust

    Three solutions against leakage: (1) global carbon market – sectoral
    agreements, (2) Border Adjustments, (3) benchmarks in proportion to
    actual production – dynamic benchmarking
    CS & CT dislike solution 3: loss of carbon price signal
    But solution 3 provides clear carbon signals:
     Resistance to “update” of allocation, new entrants and closures (same
    benchmark for existing & new entrant plants), market share competition,
    exactly like auctioning
     Carbon price signal to combat leakage, the opposite of auctioning & ex-
    ante frozen allocation

     Typical statement of Carbon Trust: “The actual degree of emissions
    “leakage” combines many uncertanties in demand, trade and abatement
    responses”
     Conclusion: There is either loss of profits and loss of carbon price
    signal, or carbon leakage, or a combination thereof


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