The European Union's
Emission Trading Scheme has not caused heavy industries like aluminum and steel to move operations or shift investments to countries without carbon oversight, according to a
report from the International Energy Agency.
"Issues behind Competitiveness and Carbon Leakage: Focus on Heavy Industry" looks at how emissions caps could cause companies operating under carbon constraints to be less competitive than companies elsewhere. The report also examines the idea of carbon leakage, the movement of carbon-emitting production to areas without caps or other constraints.
In looking at the first phase of the E.U. Emission Trading Scheme, from 2005-2007, there has been no significant carbon leakage from the steel, aluminum, cement and refineries industries, the report says. To determine if there has been carbon leakage, the report looks at international trade flows and changes in investment patters. However, it notes that more than just carbon costs go into a company's decision on where to buy products from and where to relocate or build new operations.
The report attributes the lack of significant change in trade flows and production patterns to the free allocation of emissions allowances, long-term electricity contracts and an overall boom in prices for products subject to carbon costs.
Better tools for studying and understanding carbon leakage will need to be developed, and the report says the issue will have to be continually monitored as the E.U. Emission Trading Scheme changes. It is currently in its second phase, which runs until 2012. After that, emissions reductions are expected to become stricter.
The report also reviews policies being discussed to prevent significant carbon leakage, including free allocation of emissions allowances to existing and new facilities, and financial compensation to make up for competitive differences. Policies, though, should be aimed at specific sectors or sub-sectors, not across the board to all industries, the report says.
