• Client: EC – DG Climate Action
  • Implementation period: 2020 - 2021 (Ongoing)
  • Geographic coverage: European Union

Which policy options should the EU apply to mitigate carbon leakage impacts of higher emission reduction targets?

The European Green Deal has led to an increase in the climate ambition of the EU to a 55% emissions reduction by 2030, this has implications for EU climate policies including the EU Emission Trading System (EU ETS). Changes to the cap, the free allocation methodologies, thresholds and benchmarks could all contribute to achieving the new target. These changes would also impact industry, possibly leading to carbon leakage – i.e. industry relocating its production and thereby its emissions outside the EU, which would jeopardise both EU competitiveness and climate change objectives. It is therefore crucial to analyse the effects of any potential changes to the current carbon leakage policy for the economic, social and environmental impacts, with the aim to mitigate any unintended effects and foster low carbon development within the EU. The project is performed by Trinomics in collaboration with Ricardo (lead), and Oeko Institute. It will run from September 2020 and finish by May 2021.

This investigation provided the following preliminary results:

  • Explore the key policy options to mitigate carbon leakage and thereby strengthen the rationale for increased emission reduction targets;
  • Analyse the economic, social and environmental impacts of different policy options, including their ability to foster innovation and low-carbon development;
  • Perform a sectoral analysis of 10 energy intensive industries and provide a synthesis of the key impacts across the selected policy options.