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ETS EP Roundtable Schyns 10 06 08


									     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
     Conclusion: There is either loss of profits and loss of carbon price
    signal, or carbon leakage, or a combination thereof


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