Tuesday 27th September 2016                 Change text size:

Study: increasing EU carbon price would have ‘extremely limited’ impact on business



coal power plant by Emilian Robert Vicol via Flickr

Despite claims that increasing the price of carbon in the EU could harm businesses, a new study suggests that this is not the case. According to the paper, even a ten-fold increase in the carbon price is likely to have an “extremely limited” impact on exports and imports. 

The researchers, from the Grantham Research Institute on Climate Change and the London School of Economics, analysed 62 business and industry sectors in 42 countries over a 15-year period, using data that covers 80% of global merchandise trade.

The carbon price in the EU is currently around €7 (£5.10) per tonne, the study calculates how increasing the carbon price ten-fold, making it €65 (£47.32) per tonne, in the European Union Emissions Trading System would have an impact. The researchers found such as increase would be equivalent to a 30% rise in energy prices.

However, despite the increasing cost of energy, it is estimated that exports would fall by only 0.5% and imports would increase by 0.07%. Even in energy-intensive sectors the researchers found that changes in energy prices explain less than 0.01% of the variation in trade over the past 15 years.

Dr Misato Sato, co-author of the paper, said, “To put things into perspective, while a 30% increase in energy cost in the European Union would increase imports by less than one-tenth of a per cent, imports have actually been growing at an annual rate of 15.6% since 2009. Therefore, the impact on trade of more ambitious policies to reduce greenhouse gas emissions is likely to be extremely limited.”

The paper also states that concerns over the biggest polluters in the EU relocating if the carbon price increases, a concern known as ‘carbon leakage’, meaning greenhouses gas emissions would continue to occur in a different location, are “overstated”.

Dr Antoine Dechzleprêtre, the paper’s co-author, added, “Contrary to some claims, rises in energy prices do not have much effect on the global competitiveness of businesses. Even a sizable difference in the price of energy relative to the rest of the world has only a very small impact on a country’s imports and exports.”

Photo: Emilian Robert Vicol via Flickr

Further reading:

IEA: oil price slump ‘golden opportunity’ to put price on carbon

Industry mulls over future of carbon price floor

Budget 2014: Osborne freezes carbon price floor and boosts North Sea oil

EU carbon price set to average at €23/t between 2021 and 2030

Second-biggest carbon market launched by South Korea


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