Introduction - Context and objectives

AuthorFabien Roques - Helene Laroche
Final rep ort
1. I ntrodu ctionCont ext and obj e ctives
Carb on leakage refers to a situat ion that may occur when , for cost -r elated r easons
induced by clim at e policies e.g. EU Emissions Trading Schem e (ETS) – bu sinesses
choose to t ransfer production to other countr ies which hav e lax er const raints on
gr eenho use g as em issions. Carbon leaka ge co uld eve ntu ally lead to an incr ease i n t otal
em ission s as a resu lt of increased emissio ns ou tsid e Europe.
In Europe, following the intr oduct ion of the ETS, indu strial sectors deemed at a risk of
carbon leak age have been com pensated for direct em ission costs with free ETS
allowances sin ce 2013 (Carbon Leak age List). On t op of the compen sat ion for dir ect
emission cost s, t he 2012 ETS Guidelines allowed Member St ates to compen sat e som e
energy-int ensive indust r ies for t he high er electricity cost s r esulting f rom the EU ETS,
also called indirect em ission costs. Under th ose Guidelines, thirt een sect ors and seven
subsect or s3 are cur rent ly eligible f or St at e Aid and 12 Mem ber States4 h ave currently
intr oduced com pensation schem es fo r in direct emission cost s.
The revised ETS Directive, wh ich ent ered in to f orce in 2018 for th e nex t t rading period
2021-2030 ( Phase I V), has modified the met hodology to d eter min e sect ors exposed to
dir ect carb on leakage risk using the produ ct of t heir trade int en sit y 5 and emission
intensity as cr it er ia for eligibilit y. The pr eviou s list r equired both factors to r each a
certain threshold independent ly f rom each oth er. The new Carbon Leakag e List w as
ado pted in Febr uar y 2 019 and i dent ifi ed 5 0 sectors and 13 subs ector s for Phase IV t hat
will receive free allowan ces t o com pen sate dire ct emi ssion costs.
This lis t w itn essed a sig nifi cant redu ct ion of th e n um ber o f sec tor s com pared w it h Phase
III that included 153 sectors and 22 subsectors. However, t he issue of carbon leakag e
risk due t o indir ect carbon costs for this new per iod r em ains t o be addressed . Th e
Com mission is currently considering int er alia a r evision of the eligibility criteria f or
indir ect cost s com pensation as w ell as t he calcu lati on of th e maximum aid amoun t.
In this contex t, ADE and Comp ass Lexecon (t he Con sortium) have been com missioned
by t he Eur opean Com m ission (EC) to pr ov ide su pport in the com bined ret rospective
evaluation and pro spect ive im pact asse ssmen t st udy of the ETS St ate Aid Gu idelines.
Mor e specifi cally , t he EC m andated t he Consor tiu m to pr ovid e sup port on th e fo llow ing:
Dat a and information t o th e EC for th e update on t he retrospective
evaluation of t he 2 012 Guidelin es du ring t he Phase I II of EU ETS. For this
phase of work , w e:
ident if ied factors ex plaining w hy certain Mem ber States
have or hav e not im plem ented com pensation m echanism s
for in dir ect em ission s cos ts, targeting in du str ies d eem ed a t
risk of ca rbon leak age;
ht tp s: / / eur lex .eu ro pa. eu/ leg alco nt ent / EN/ TXT/ ?ur i= CELEX: 520 12 XC060 5% 2 801 % 29
4 How ever , f or the pur pose of thi s st udy, only th e com pen sat ion schem es i n 11 Mem ber
States h ave been an alysed , as Poland int rodu ced it s com pensation scheme in August
20 19 a fter th e beg inni ng of th e work of the Consor tium .
5 Tra de in ten sity = (Im por ts from ex tra -EU + e xpor t t o ext ra-EU) / ( imp ort from ext ra-
EU+ turnover ) a ll in value

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