OECD rejects EU industry’s carbon leakage arguments

Tough climate rules have little impact on export competitiveness, find economists, so industry carve-outs are not justified

European steel works are under threat, but retraining not carbon freebies are the answer, say OECD economists (Pic: Pixabay)

European steel works are under threat, but carbon freebies are not the answer, say OECD economists (Pic: Pixabay)

By Megan Darby

EU steel and chemical industries lobby for carve-outs from the bloc’s environmental rules. Without special treatment, they say jobs will be lost to overseas pollution havens.

A report from the OECD club of rich countries published on Thursday rubbishes that argument.

Its analysis found differences in the strength of green policies made very little difference to trade between rich and emerging economies. Other factors like trade tariffs and market size were far more significant.

“There may be reasons for being concerned about competitiveness in Europe, but environmental stringency isn’t one of them,” said OECD chief economist Catherine Mann at a media briefing in London.

While the research showed some carbon-intensive sectors like steel were put at a slight disadvantage, this was balanced out by growth in cleaner industries.

Report: EU steel lobby seeks protection from China ‘carbon dumping’

Mann contended it was better to retrain workers affected by plant closures than bend environmental rules to keep them open.

“It is very clear who the losers are,” she said. “That is where you need to have complementary labour market policies.”

As governments around the world put last December’s Paris climate agreement into practice, they should be seeking competitive advantage in low carbon innovations – “the market of the future”.

It is pertinent to debate raging in Brussels over the future of its flagship climate policy, the emissions trading system.

Environmentalists want radical reforms to boost the carbon price, currently languishing at €5 a tonne, and spur clean investment.

Heavy industries, on the other hand, are seeking exemptions from these costs, to prevent “carbon leakage” – a flight of polluting plant abroad.

Tomasz Kozluk, lead author of the report, said: “When you set these policies that exempt [certain sectors], you also reduce the incentive to innovate and become cleaner… you should think really seriously when you are giving out these kind of benefits.”

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