Assessment of the potential for carbon leakage in Phase IV of the EU ETS : synthesis report

The findings from the IPCC (2018) report led the EU to review the ambition of its Nationally Determined Contribution (NDC) to the Paris Agreement and subsequently the European Commission announced the European Green Deal in December 2019, which proposes to raise the ambition level of the EU's GHG reduction target for 2030 to at least 55 % below 1990 levels (European Commission 2020b). This represents a substantial increase compared to the existing target of at least 40 % and this has farreaching implications for industrial sectors in Europe that will now be required to decarbonise and reach carbon neutrality by 2050. Given that the EU Emissions Trading System (ETS) is the key instrument for reducing GHG emissions from power and industrial sectors, there is a concern from industry that this enhanced level of ambition will lead to an increase in direct and indirect CO2 costs that may undermine their international competitiveness and result in carbon leakage.