Copenhagen Economics has been commissioned by the Nordic Council of Ministers to analyse the Nordic industrial structure with a view of assessing the risk of carbon leakage. Carbon leakage is the situation where production and associated CO2 emissions relocate from countries with strict climate policies to countries with more lenient climate policies.

In the report we come to the following key messages:

• The key industries in the Nordics exposed to carbon leakage are related to paper and pulp, iron and steel, aluminium, processing of fish, and manufacture of chemicals. These key leakage exposed industries account for about 10.2 per cent of Nordic value added (ranging between 1.6 per cent in Denmark to 14.6 per cent in Finland).
• Producers have very little possibility of passing on cost increases from climate policies to consumers. This is especially the case in production of commodity-like goods such as iron and steel, aluminium and paper products.
• Leakage exposed industries in the Nordics tend to get a high share of their energy from electricity from the grid while corresponding firms in other EU countries tend to produce more of their own energy. Due to the relatively low carbon content in Nordic electricity production mix (hydro, wind, nuclear power), this implies that a unit of production moved from the Nordic area to other parts of EU or the rest of the world is likely to be followed by a net increase in carbon emissions.
• We have in this respect evaluated a number of different policy approaches that may reduce the risk of carbon leakage. From a Nordic perspective, we want to put special emphasis on the importance of the Nordic electricity intensive industry which does not receive free allowances under the ETS system. It is of much importance that the EU guidelines for State aid – currently under revision – leaves scope to address leakage in a manner consistent with the ETS and the Energy Tax Directive.  

To read the report, please see here

To read the report on the Nordic Council of Ministers’ webpage, please see here

For more information, please contact partner Sigurd Næss-Schmidt