Rising price of carbon would have almost no effect on EU trade, study finds

Researchers from the London School of Economics and the Grantham Research Institute found that increasing the EU carbon price from its current €7/tonne of CO2 to €65 would be equivalent to a 30% rise in energy prices for manufacturers.

But such a cost increase would reportedly cause exports to fall by only 0.5% and imports to rise by 0.01%.

The paper – which claims to be the first to quantify the effect of energy prices on global trade – analysed 62 business and industry sectors in 42 countries over a 15-year period.

Report co-author Dr Misato Sato said: “To put things into perspective, while a 30% increase in energy costs in the European Union would increase imports by less than one-tenth of a percent, imports have actually been growing at an annual rate of 15.6% since 2009.

“Therefore, the impact on trade of more ambitious policies to reduce greenhouse gas emissions is likely to be extremely limited.”

Resilience

As a result, the paper suggested that the risk of ‘carbon leakage’ – whereby a high carbon price within the EU would force the biggest polluters to re-locate – has been overstated.

Report co-author Dr Antoine Dechezleprêtre said: “Even heavy, energy-intensive industries are more resilient to high energy prices than has been suggested by some companies and politicians.”

“Policy-makers should not allow the prospect of an increase in energy and carbon prices to dictate efforts designed to cut emissions and tackle climate change.”

Price of carbon?

The EU emissions trading system (EU ETS) is the first – and still by far the biggest – international system for trading greenhouse gas emission allowances. It covers more than 11,000 power stations and industrial plants in 31 countries, as well as airlines. 

In January, businesses, represented by the Prince of Wales’s Corporate Leaders Group on Climate Change (CLG) called for more restrictions on the amount of polluting permits, to help the EU reach its target of 40% emissions reductions by 2030.

edie staff