E3-Modelling’ s study on “Carbon Leakage” for AFEP presented on January 14th 2021

E3-Modelling’ s “study on “Carbon Leakage” for AFEP presented on January 14th 2021.

E3-Modelling concluded the independent study “Trade and climate change: Quantitative Assessment of the Best Policy Tools to Achieve Climate Neutrality and Competitiveness”, commissioned by the French Association of Large Companies AFEP.

Two main objectives are pursued within this study:

(i) assess the effective impact of the climate neutrality scenario and
(ii) identify best policy tools to avoid the risk of carbon leakage outside the EU while maintaining EU growth and competitiveness.

To accomplish these objectives, the study relied on the GEM-E3 General Equilibrium Model, developed by E3-Modelling, for quantifying the overall balance of carbon emissions due to international trade and investment and, by contrast, carbon emission avoidance due to the same trade and investment flows. This study includes the first available analysis providing a comparative and quantitative assessment on the Carbon Border Adjustment Mechanism and other trade policy tools ahead of the forthcoming proposal of the European Commission.

The cornerstone of this report’s recommendations is that a tax-based (or ETS separate market for imports) CBAM is clearly a better performing tool than other internal instruments, such as a final consumption tax if it comes along with strong supportive measures, such as WTO-compatible subsidies, that would help EU companies to be protected from carbon leakage. At the same time, CBAM results would be significantly boosted if this tool would be combined with international trade agreements with a « green » impact: for instance, a revised Agreement on industrial subsidies and an agreement reducing tariff duties on low carbon and environmental goods.

The final report of the study was made public on the 14th of January in Brussels during the webinar « Trade and Climate change: making the case for CBAM and other green trade rules ».

During the presentation of the study Laurent Burelle, Chairman of AFEP, commented in his opening speech: “This assessment confirms the unprecedented level of carbon leakage that the EU companies will be facing from 2030 onward” and “it shows that a well-designed carbon border adjustment mechanism to be set up voluntarily at a sectoral level is effective if it is complemented by supporting internal and international instruments, in particular, trade agreements on the reduction of industrial subsidies and on tariff erosion for green products”.

To access the report please click here