The sun also rises: Policy instruments to mitigate the adverse effects on competitiveness and leakage

Abstract

This report uses a dynamic CGE model, to assess the rate of carbon leakage and the adverse impacts on competitiveness in a number of scenarios over the period 2010‐2050. The report is structured as follows: Chapter 3 reviews the economic modelling literature on anti‐leakage policy instruments. Chapter 4 presents the CGE model and describes the main assumptions and data. Chapter 5 describes the baseline and the policy scenarios. Chapter 6 reports the simulation results. Chapter 7 presents the assessment of the anti‐leakage policy options in terms of the CECILIA2050’s optimality criteria. Chapter 8 presents the econometric assessment of the effect of renewable energy support policies on first mover advantages of renewable energy manufacturers on the global market place. Chapter 9 concludes. The results of the analysis show that the absence of international cooperation will trigger high levels of international carbon leakage and will have serious adverse effects on competitiveness. The report concludes that an international agreement with broad cooperation is the best policy option to prevent these negative effects. Investments in energy efficiency and renewables constitute a second-best solution to mitigate carbon leakage and the adverse effects on competitiveness