A new report published by the Nordic Council of Ministers at the beginning of May investigates the issue of carbon leakage in the Nordic countries, assessing its risks and also providing advice on how to design effective preventive policies.
Carbon leakage is a situation in which a policy-induced reduction in CO2 emissions domestically is followed by increased emissions abroad. The report investigates what industries are at risk of carbon leakage, from a Nordic perspective. Its findings reveal that aluminum and copper, basic iron and steel and paper, all having energy intensities over 40 per cent, have the highest risk of carbon leakage. The policy of giving free emissions allowances to industries at risk of carbon leakage is relatively equally spread out, leaving industries at high risk “undercompensated” and industries at low risk “overcompensated”.
According to the report, the leakage rates for the energy intensive industry from unilateral ambitious EU targets could be as high as 70%, and even as high as 85% if the Nordic countries unilaterally adopt more ambitious targets. The key to limit the risk of carbon leakage is collective global action.