Carbon leakage in the Nordic countries

Carbon leakage is a situation in which a policy-induced reduction in CO2 emissions domestically is followed by increased emissions abroad. Domestic industries are put at a competitive disadvantage while global CO2 emissions are not reduced but merely moved from one region to another.

To avoid carbon leakage, energy-intensive industries in direct competition with foreign companies are granted free ETS allowances or directly compensated for indirect carbon costs.

In our study, we assess the risk of carbon leakage for Nordic industries and highlight potential Nordic policy perspectives to bring to the European discussions.

The main conclusions of our study are:

• Empirical studies of current carbon leakage rates cannot be used to assess the risk in the future.
• The Nordic industries most at risk of carbon leakage are aluminium and copper, basic iron and steel, and paper.
• Nordic industries at risk of carbon leakage have on average reduced energy intensity by 28% since 2008.

The study is commissioned by Nordic Council of Ministers