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Environmental and Resource Economics

, Volume 60, Issue 1, pp 99–124 | Cite as

Sectors Under Scrutiny: Evaluation of Indicators to Assess the Risk of Carbon Leakage in the UK and Germany

  • Misato Sato
  • Karsten Neuhoff
  • Verena Graichen
  • Katja Schumacher
  • Felix Matthes
Article

Abstract

One of the central debates surrounding the design of the European Union Emissions Trading Scheme is the approach to address carbon leakage concerns. Correctly identifying the economic activities exposed to the risk of carbon leakage represents the first step in mitigating the risk effectively. This paper assesses the robustness of the quantitative assessment criteria used by the European Commission for Phase 3. For example we apply the criteria to data for UK and Germany and compare the results with the Commissions’ assessment conducted at the aggregated EU level. This reveals that sectors’ exposure risk to carbon leakage can vary across different Member States due to differences in production processes, technologies and fuel mix; process emissions; recycling rate differences; product mix differences; sector classification, statistical boundaries, activity allocation differences; and finally difference in data quality. Overall, we find that relative carbon intensity of sectors, measured as cost increase relative to gross value added, provides a robust metric. The analysis also highlights the importance of using high quality and disaggregated data for this assessment.

Keywords

Emissions trading Carbon leakage Emissions leakage Trade effects  Cost exposure 

JEL Classification

Q58 Q54 H23 F13 F18 H87 

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Copyright information

© Springer Science+Business Media Dordrecht 2014

Authors and Affiliations

  • Misato Sato
    • 1
  • Karsten Neuhoff
    • 2
    • 3
  • Verena Graichen
    • 4
  • Katja Schumacher
    • 4
  • Felix Matthes
    • 4
  1. 1.Grantham Research InstituteLondon School of Economics and Political ScienceLondonUK
  2. 2.DIWBerlinGermany
  3. 3.Technical University BerlinBerlinGermany
  4. 4.Öko-Institut, e.V. (Institute for Applied Ecology)BerlinGermany

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