The impact of implementing a consumption charge on carbon-intensive materials in Europe
Open accessAbstract
The production of basic materials accounts for around 25% of global greenhouse gas emissions. Existing measures to reduce emissions from industry are limited due to a combination of competitiveness concerns and a lack of technological options available to producers. In this paper, we assess the possibility of implementing a materials charge to reduce demand for basic industrial products and, hence, also reduce industrial emission levels. The modelling shows that a charge equivalent to around €80/tCO2 could reduce the EU’s total (energy plus process) CO2 emissions by up to 10% by 2050, depending on the substitution options available. The materials charge could lead to small GDP increases and a minor reduction in overall employment levels.Key policy insights Full carbon price pass through along the materials value chain creates incentives for resource efficiency and substitution in the value chain of material use.Most macroeconomic models ignore mitigation opportunities in the value chain, as do carbon pricing mechanisms for industrial emitters, which largely mute incentives for mitigation opportunities with free allowance allocation.Including consumption at a benchmark level in emission trading systems reinstates a full carbon price incentive for all mitigation opportunities while avoiding competitive distortions and carbon leakage risks.Macroeconomic modelling shows that this allows for an additional 10% emission reduction accompanied by a slight GDP increase and employment reduction. Long-term clarity on carbon leakage protection furthermore strengthens low-carbon investment frameworks.
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Several studies on the EU's CBAM proposal found that energy-intensive exporters, especially Russia and China, are likely to be adversely impacted.
“Several studies pertaining to the EU's CBAM proposal (161-163) have found that energy-intensive exporters, especially Russia and China, are likely to be adversely impacted (159).”
From Carbon Leakage, Consumption, and Trade (2022) · cites this paper as [163]
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- Authors
- Pollitt, H., Neuhoff, K., & Lin, X.
- Affiliations
- Cambridge Econometrics (United Kingdom) (GB)
- German Institute for Economic Research (DE)
- Corresponding author
- Pollitt, Hector
- Venue
- Climate Policy
- Publisher
- Informa UK Limited
- Published
- 2019-06-18
- Volume
- 20
- Issue
- sup1
- Pages
- S74-S89
- ISSN
- 1469-3062 (ISSN-L)
- 1752-7457
- OpenAlex
- W2952275468
- Cited by
- 40
- References
- 39
- Citations by year
- 2026: 2 · 2025: 4 · 2024: 5 · 2023: 1 · 2022: 11 · 2021: 8 · 2020: 6 · 2019: 3
- FWCI
- 8.75
- Type
- journal article
- Language
- en
- Open access
- hybrid
- doi.org
- Locations
- Climate Policy (publishedVersion, cc-by)
- RePEc: Research Papers in Economics (submittedVersion)
- Econstor (Econstor) (submittedVersion, cc-by)
- Funders
- FP7 Socio-Economic Sciences and Humanities (603386)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Climate Change Policy and Economics
- Physical Sciences › Energy › Renewable Energy, Sustainability and the Environment › Energy, Environment, and Transportation Policies
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Energy, Environment, Economic Growth
- Keywords
- industrial emissions, CO2 emission reduction, carbon pricing, emissions trading, carbon leakage, resource efficiency, material substitution, macroeconomic effects, low-carbon investment, EU climate policy
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