ABSTRACT
The production-based accounting focus of mitigation policies has led to the potential displacement of intensive emissions production offshore, in turn provoking carbon leakages and the shifting of environmental pressures. One of the two criteria of the EU Directive 2009/29/EC for identifying sectors presenting significant risks of carbon leakage uses the intensity of trade with third-party non-community countries as a main determinant. The failure to include carbon content in this criteria results in an underestimation of the number of sectors at risk of carbon leakage and in some cases to their misidentification. This chapter presents new criteria for identifying sectors at risk for carbon leakage within the framework of a consumption-based approach. Our proposal allows for the identification of industries for which a free allocation of emissions permits would be more suitable and, by contrast to the directive, for which a border tax would constitute a more appropriate means of improving the effectiveness of the EU Emissions Trade Scheme in the context of the Paris Agreement.
