Mitigation of adverse effects on competitiveness and leakage of unilateral EU climate policy: An assessment of policy instruments

Alessandro Antimiani, Valeria Costantini, Onno Kuik and Elena Paglialunga

Ecological Economics, 2016, vol. 128, issue C, 246-259

Abstract: The European Union (EU) has developed a strategy to mitigate climate change by cutting greenhouse gas (GHG) emissions and fostering low carbon technologies. However, the risk of implementing unilateral policies is that distortive effects are generated at the global scale affecting world energy prices, international competitiveness and the geographical allocation of carbon intensive production processes. Using a dynamic CGE model, we assess the rate of carbon leakage and adverse impacts on competitiveness in a number of scenarios over the period 2010–2050. According to the model results, we highlight two major issues. First, in the case of a unilateral EU climate policy, carbon leakage and negative effects on competitiveness are quite serious. Anti-leakage measures can only mitigate leakage and adverse economic impacts on competitiveness in a limited way. On the contrary, an optimality analysis addressing the environmental effectiveness, cost-effectiveness and political feasibility of alternative policy solutions reveals that the EU long term decarbonisation strategy by investing in energy efficiency and renewable energy might ensure protection of vulnerable manufacturing activities while enhancing the competitiveness of technologically-advanced industries.

Keywords: Climate mitigation policy; Carbon leakage; Carbon border tax; Energy efficiency; Renewable energy (search for similar items in EconPapers)
JEL-codes: C68 F18 Q47 Q54 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:128:y:2016:i:c:p:246-259

DOI: 10.1016/j.ecolecon.2016.05.003

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