Imposing a unilateral carbon constraint on European energy-intensive industries and its impact on their international competitiveness - data & analysis

Bergmann, Manfred and Schmitz, Andreas and Hayden, Mark and Kosonen, Katri (2007): Imposing a unilateral carbon constraint on European energy-intensive industries and its impact on their international competitiveness - data & analysis.

Abstract

This paper investigates the implications of EU climate change policy for energy intensive industries. Specifically, it calculates, for a range of energy-intensive processes and products, the product price increases that would be required to maintain unit profits at present levels, based on likely values of allowance prices in the European Union Emissions Trading Scheme up to 2020. For most of the energy- and carbon-intensive products considered here, an allowance price of €20 per tonne of carbon dioxide would require price increases of between 0.1 to 5% to maintain profits, assuming full pass-through of the allowance price along the value chain. Doubling the allowance price to €40/tonne would double the required increase. The activities that risk being most challenged by the carbon constraint appear to be container glass production using virgin inputs, primary aluminium production, primary steel production based on the basic oxygen furnace process, and some basic chemicals production. However, the analysis has also shown that for many of these cases alternative production processes exist, based on recycled inputs, for example. The cement sector, although very energy- and carbon-intensive, is relatively little exposed to international competition. Indeed, the paper also investigates in how far it would be possible for the affected activities to pass through cost increases to their clients, by analysing their exposure to domestic and international competition. It concludes that the sectors analysed are typically relatively highly concentrated (sometimes even at the world level) and form parts of vertically integrated and locally-clustered value chains. This tends to increase market entry and exit barriers and, thus, to reduce the risk of large output losses and delocalisation.

• Item Type: MPRA Paper
• Language: English
• Keywords: climate change, competitiveness, energy-intensive industries, emissions trading
• Subjects: L - Industrial Organization > L6 - Industry Studies: Manufacturing > L65 - Chemicals ; Rubber ; Drugs ; Biotechnology; F - International Economics > F1 - Trade > F18 - Trade and Environment; L - Industrial Organization > L6 - Industry Studies: Manufacturing > L61 - Metals and Metal Products ; Cement ; Glass ; Ceramics; D - Microeconomics > D2 - Production and Organizations > D24 - Production ; Cost ; Capital ; Capital, Total Factor, and Multifactor Productivity ; Capacity; D - Microeconomics > D4 - Market Structure, Pricing, and Design; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate ; Natural Disasters and Their Management ; Global Warming

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