Year: 2022
Type: dissertation
Abstract: Concerns on carbon leakage, i.e., the rise of emissions in non-regulated regions due to a loss in the competitiveness of regulated firms, have been voiced for decades as environmental regulation has tightened to respond to the ongoing climate crisis. However, the risk of carbon leakage has recently been deemed especially high for industries and firms under the European Union Emissions Trading System. This literature review aims to investigate whether leakage has occurred in the EU ETS. The specific focus is on leakage through the investment channel, so-called investment leakage. An increase in outward investment flows could mean that EU ETS firms are relocating to non-regulated regions, also offsetting a part of the emissions reduction in the EU. These leakage rates have generally been predicted with partial and general equilibrium models, but an empirical approach has also been adopted in the recent years. However, the results of both ex-ante and ex-post studies suffer from a variety of challenges, which also shows in the ambiguous results thus far. Regardless of the lack of evidence on investment leakage, the EU ETS has taken vast measures to ensure that leakage is not realized, for example by adopting various protection mechanisms.
Source: Aaltodoc (Aalto University)
Author: Cozma, Ilinca
Language: English
Subfield: Economics and Econometrics
Domain: Social Sciences
SDG: Climate action
Open Access status: green
OpenAlex ID: W7038670358