Critical review of recent report on cost pass-through and carbon leakage

In a report by CE Delft and Öko-institute (December 2015), significant cost pass-through rates were estimated for a number of sectors, including fertilisers. This was interpreted to suggest that the EU industry was not at risk of carbon leakage, as they could pass through increased ETS costs to consumers.

Combining our knowledge of econometric modelling and the economics of the fertiliser industry, we argued that the results in the report were counter-intuitive and contrary to basic economic understanding. We argue that the counter-intuitive results are driven both by errors in the econometric methodology as well as limited understanding of the economics of fertiliser industry

The main conclusions of our study are

The study was commissioned by Fertilizers Europe



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