Carbon leakage: an unintended (but manageable) side-effect of carbon pricing
Ottawa, ON, Nov. 04, 2019 (GLOBE NEWSWIRE) -- Carbon pricing is now in place across Canada. Its aim is to encourage behaviours and technology adoptions that lead to reductions in greenhouse gas (GHG) emissions. But carbon pricing can also result in unintended consequences ? such as carbon leakage.
Carbon leakage occurs when firms move their operations from Canada to other countries in order to avoid carbon pricing. This represents a loss to Canada's economy, while only shifting ? rather than reducing ? global GHG emissions. Industries that rely on fossil fuels as inputs and that face a high-degree of global competition ? known as emissions-intensive and trade-exposed industries (EITEIs) ? are the most at risk of leakage.
This is the focus of a new report by The Conference Board of Canada:Tipping the Scales ? Assessing Carbon Competitiveness and Leakage Potential for Canada's Energy Intensive and Trade Exposed Industries (EITEI). The report assesses the potential size and implications of carbon leakage in Canada, filling an important knowledge gap.
"Carbon leakage has been studied extensively in the European Union and elsewhere", explains Carlos Murillo, Senior Research Associate at The Conference Board of Canada. "Despite growing use of carbon pricing in Canada, little work is publicly available on quantifying the potential for carbon leakage here", explains Murillo.
Report highlights:
- 13 EITEIs are identified across Canada including primary industries, such as oil and gas production, mining, and forestry, electric utilities, and various manufacturing industries ? including wood, pulp and paper, chemicals, metals, and cement products.
- These industries account for 10 per cent of Canada's economy but are of much greater significance to Canada's Western and Atlantic provinces.
- EITEIs account for close to half of Canada's energy use and GHG emissions.
- Carbon compliance costs for this group of industries could be as high as $5 billion ? potentially displacing $10 billion in economic activity, 50,000 jobs, and 19 mega-tonnes of GHG emissions.
- Higher carbon prices and broader emissions coverage results in generally greater carbon compliance costs for Canada's EITEIs relative to their global peers.
- Among EITEIs, carbon pricing competitiveness pressures are the highest for the forestry, wood, pulp and paper products, and oil and gas industries.
- The magnitude of potential carbon leakages is greatest in the primary metals, chemicals, pulp and paper and non-metallic mineral products manufacturing industries, as well as for the least GHG-intensive oil sands projects and for natural gas production.
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