In discussions with our clients and other observers at the Copenhagen climate change conference, I have heard many quote some variation of the following: COP15 is not a climate change negotiation, it's a trade negotiation.

Indeed it is, and the magnitude of the money at stake has less to do with the tens of billions of dollars for direct finance for adaptation and mitigation that developed countries are beginning to agree to commit, and much more to do with the possibility of trillions of dollars at risk from the  impact on the international competitiveness of certain industries in developed or developing countries that could be created if climate change regulations are unilateral, uncoordinated and not global in nature.

Concerned about the impact of a lack of a global agreement on European industry,  the  EU has adopted regulations that have provisions to address what is commonly called carbon leakage. As the next phase of the ETS is expected to bring substantially higher compliance costs to firms, some business sectors could have an incentive to move away to geographies with less stringent or no carbon constraints. This exporting of industries, along with their emissions, would of course override the environmental impact of the scheme and materially harm the EU economy.

The EU plans to limit this leakage by compensating sectors deemed to be at risk of leakage. Through a preliminary assessment, the EU identified the sectors and subsectors within its economy most likely to be at risk of carbon leakage:

• Food processing industries
• Industrial gases
• Non-metallic mineral products
• Glass fibers (filament glass fibers)
• Colors and similar preparations for ceramics/ glass etc
• Finishing of textiles
• Wood-based panels
• Manufacture of plastics in primary forms
• Casting of iron
• Casting of light metals