Policy Options to Address Competitiveness Concerns: Lessons from the EU ETS and Other Trading Systems

Uneven climate policy efforts across different jurisdictions are seen as a potential source of competitive distortions and ‘leakage’ of greenhouse gas emissions. Such concerns have prompted discussion of measures to avert undesired impacts of asymmetrical mitigation efforts. Several policy responses are available to decision makers, including financial assistance for affected sectors, cost containment and flexibility in emissions trading systems, border adjustment measures, and international policy convergence. While politically attractive, such measures can also give rise to new challenges or undesirable outcomes, such as trade disputes. In the European Union, vulnerable industries have benefited from preferential treatment, successfully reducing the likelihood of competitive impacts, but also affecting the stringency of European climate policy efforts. A careful balance between environmental priorities and stakeholder demands is therefore critical, and insights garnered from existing climate mitigation efforts can provide valuable guidance for policy design and civil society engagement.

Author: Michael Mehling
Year: 2013
Type: Working papers