ABSTRACT
This chapter reviews how the EU Emissions Trading System (EU ETS) has been dealing with carbon leakage, an issue that has been sensitive since the start in 2005. A system of free allocation was gradually developed and harmonised throughout the EU, to make sure the principle of the single market was respected. The 2023 EU ETS revision rationalised the system further and strengthened incentives for the deployment of low- and zero-carbon technologies. In addition, a Carbon Border Adjustment Mechanism (CBAM) has been created for some key industrial products as an alternative measure to free allocation. 2
