Carbon leakage

The European Emission Trading Scheme (ETS) puts a price on emissions of certain greenhouse gases, like carbon dioxide, for included industrial companies. These companies have to match their greenhouse gas emissions with allowances, which are partly allocated at zero cost. Companies being short on allowances need to purchase additional allowances.

Carbon leakage is a term to describe the risk that companies relocate their production outside Europe due to increased costs, thus leaking emissions outside of the EU ETS cap. The carbon leakage status of sectors has a significant and increasing impact on the free allocation of allowances and consequently on the ETS-cost for companies.

The carbon leakage status of sectors is determined on the basis of a quantitative or qualitative assessment. Ecofys was subcontractor for the Oeko-Institute in a study for the European Commission (DG CLIMA) to prepare the general revision of the list of sectors deemed to be exposed to a significant risk of carbon leakage for the period 2015-2019. The final study provided insight into different methodological options for the quantitative carbon leakage assessment, a harmonized framework for the qualitative assessments, and possibilities for taking into account the commitments of third countries. Furthermore the investigation monitored latest research developments regarding the carbon leakage phenomenon.

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Please find additional insights in these publications we contributed to:
Carbon leakage prospects under Phase III of the EU ETS and beyond
A dynamic allocation model for the EU Emissions Trading System


Michiel Stork
Sustainable Industries and Services
Carbon Leakage - The risk of companies relocating outside Europe