Reducing the decarbonisation cost burden for EU energy-intensive industries

Article - July 27, 2021

We use an enhanced version of GEM-E3-FIT model to assess the macro-economic impacts of the EU Green Deal. Leakage reaches 25% over 2020–2050, with chemicals and metals facing the stronger risks for relocation to non-abating countries. Notably, for carbon leakage, the size and composition (in terms of GHG and energy intensities) of countries committing to emission reductions matter. That is, carbon leakage drops when China joins the mitigation effort, as a result of its large market size and the high carbon intensity of its production.  The Border Carbon Adjustment can minimize leakage and the negative activity impacts on energy-intensive and trade-exposed industries of regulating countries, by shifting the emission reduction to non-abating countries through implicit changes in product prices.

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