Climate | Other
Linking emissions trading systems with different measures for carbon leakage prevention
25 March 2022
BY: VERDE Stefano F., GALDI Giulio, Simone Borghesi, Albert Ferrari
Different measures for carbon leakage prevention across Emissions Trading Systems (ETSs) may distort economic competition between firms. The same is true of competition between jurisdictions if decisions on the location of production plants are concerned. Free allocation of emission allowances responds to a logic of carbon costs compensation. Border carbon adjustments aim at levelling the playing field between domestic firms and their foreign competitors. Direct support to low-carbon innovation aims at enhancing the competitiveness of domestic firms. Any instrument for carbon leakage prevention could produce, depending on its own specific design, competitive distortions that are illegitimate under WTO law or other applicable trade regime. By inducing convergence of allowance prices, ETS linking reduces any internal competitive distortion due to differences in carbon prices. However, given pre-link differences in anti-leakage measures, price convergence can highlight or even exacerbate potential competitive distortions. In a linking context, output-based allocation may amplify or attenuate competitive distortions by interacting with post-link changes in allowance prices. Differences in anti-leakage measures do not preclude linking in a technical sense. However, with time, some harmonization may prove necessary for the political sustainability of the linkage. The actual significance of any competitive distortion always depends on the extent to which firms compete in a market.
logo cadmus Read it on Cadmus Download in open access

LATEST FSR PUBLICATIONS

Other
Rail has a key role to play in making transport more efficient and sustainable in the EU and elsewhere. However, increasing passenger and cargo volumes require investment in infrastructure, and [...]
Technical Report
In this work, we present the major application and impact areas of Contracts-for-Difference (CfDs) in a European context, describe the most relevant design dimensions and discuss several design packages for [...]
Other
After years of record announcements, frantic policy development and the establishment of substantial public support mechanisms, the clean hydrogen sector is nearing an inflexion point. Many clean hydrogen projects have [...]
Other
The safeguarding of critical offshore energy infrastructure has assumed a heightened level of urgency in the wake of the Nord Stream pipeline explosions in September 2022 and the suspected sabotage [...]
Other
The Performance Review Commission (PRC) is an independent body supported by EUROCONTROL with a remit to review and report on European air traffic management (ATM) performance. While performance has improved [...]
Technical Report
As part of the LIFE COASE project, the first Net Zero Carbon Market Policy Dialogue (NZCMPD) was held in September 2023 to discuss the latest developments and challenges faced by [...]

Join our community

To meet, discuss and learn in the channel that suits you best.

scroll

top