International competitiveness and leakage

A case study of the European steel industry

This study develops and applies an analytical framework for examining the determinants of carbon leakage and competitiveness. The study has a long-term perspective and focuses on the European steel industry. For the case study, a CGE model is used to develop feasible scenarios of the evolution of competitiveness of the European steel industry and carbon leakage for alternative instrument mixes and alternative levels of global participation in climate change policies. The study finds that without any safeguards to the industry, and in the event of moderate climate ambitions in the rest of the world, an ambitious climate policy in Europe could lead to a significant loss of competitiveness of the steel sector and a high and increasing rate of carbon leakage.

Attachment: 

Citation: 

Kuik, Onno, 2014. International competitiveness and leakage. A case study of the European steel industry. CECILIA2050 WP5 Deliverable 5.2. Amsterdam: Institute for Environmental Studies, VU University Amsterdam.

Funding: 

European Commission

Authors: 

Onno Kuik, Institute for Environmental Studies, VU University Amsterdam

Year of publication: 

2014

Number of pages: 

44

Table of contents: 

1

Executive summary

7

2

Introduction

10

2.1

Background

10

2.2

Statement of purpose and contents of the report

10

3

Environmental regulation and industry location

12

3.1

Introduction

12

3.1.1

The Pollution Haven Effect

12

3.1.2

The Porter Hypothesis

14

4

Foreign direct investment and environmental regulation

15

4.1

A model of foreign direct investment

15

4.2

Environmental regulation and foreign direct investment

20

5

Case study – the European steel sector

22

5.1

Introduction

22

5.2

The policy context

24

5.3

Option and opinions

25

6

A CGE model simulation

27

6.1

Introduction

27

6.2

Methodology

27

6.2.1

The model

27

6.2.2

Investment dynamics

27

6.2.3

Innovations

28

6.3

Data and assumptions

29

6.4

Simulation design

29

6.5

Assessment of policy options

32

6.5.1

Middle of the Road (MR)

32

6.5.2

Middle of the Road Plus (MR+)

32

6.5.3

Middle of the Road Plus (MR+bas and MR+alt)

34

6.5.4

Global Cooperation (GC)

37

7

Conclusions

38

8

References

40