Submission on methodology to determine the list of sectors and subsectors deemed exposed to a significant risk of carbon leakage

This feedback was submitted to the European Commission, expressing Carbon Market Watch’s views on the inclusion of sectors on the carbon leakage list of the EU Emissions Trading System (EU ETS). The carbon leakage list identifies all sectors which are deemed by the Commission to be at risk of leakage, i.e. the geographical displacement of GHG emissions due to the implementation of the EU ETS.

We argue and provide supportive evidence against the existence of carbon leakage within the EU ETS, and in favor of a progressive phase-out of the carbon leakage list. We claim that significant progress has taken place in international climate negotiations since 2013, for instance with the ratification of the Paris Agreement and that increased domestic actions throughout the world have thus reduced the risk of adverse competitiveness effects of climate policies on EU industries covered by the EU ETS.

The positive innovation and long term competitiveness impacts of climate policies, including the EU ETS, must be taken into consideration when identifying sectors on the carbon leakage list, as well as the negative effects of free allocation on open and competitive markets. Any potential negative short term effects of the EU ETS on competitiveness, need to be balanced with the long term gains of setting industries on a low-carbon transition path which will avoid the high future costs of a sudden shift in technologies or of stranded assets.

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Submission on methodology to determine the list of sectors and subsectors deemed exposed to a significant risk of carbon leakage