Abstract
The European Union Emissions Trading Scheme (EU ETS) is the world’s first large implementation of a \(\hbox {CO}_{2}\) cap-and-trade system. The possibility that the EU ETS would have adverse effects on sectoral competitiveness is a major concern of policy-makers and industry. This paper analyses whether and to what extent cement and steel industries are exposed to carbon leakage. Prior studies focused on ex-post EU ETS analysis without taking structural breaks into account. Considering this gap in the literature, the present study attempts to provide new empirical evidence on the risk of carbon leakage under the EU ETS. Using rolling cointegration approach, our estimation results reveal that the impact of EU ETS on these two industries varies over time. Indeed, carbon price affects positively the net imports of cement and steel sectors over multiple subperiods, suggesting that these two industries are affected by a negligible carbon leakage and competitiveness losses. However, results reveal that the steel sector is more affected than the cement sector. Policy makers and industry could benefit from the findings of this study that provides a broader understanding of the future role of the EU ETS.
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Notes
For a compilation and summary of these studies, see Vivid Economics and Ecofys (2014).
The rolling estimates of the coefficients of the independent variables and those of the speed of adjustment are available upon request.
We note that the error correction term is negative but statistically insignificant for 2006:06–2010:05 and 2006:09–2010:08 subperiods.
The authors are grateful to an anonymous reviewer for sharing an idea about this explanation.
The authors are grateful to an anonymous reviewer for suggesting this point.
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The authors are grateful to three anonymous reviewers for their valuable comments and suggestions.
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Boutabba, M.A., Lardic, S. EU Emissions Trading Scheme, competitiveness and carbon leakage: new evidence from cement and steel industries. Ann Oper Res 255, 47–61 (2017). https://doi.org/10.1007/s10479-016-2246-9
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DOI: https://doi.org/10.1007/s10479-016-2246-9