Environmental policy and carbon leakage - A literature-based assessment of risk potentials and mitigation strategies

Abstract

This bachelor thesis aims to find industrial sectors at risk of carbon leakage, as well as mitigation strategies for them. The method used is a literature review of scientific articles and books. The review finds that energy-intensive sectors are most vulnerable with steel and iron, cement, and aluminum coming consistently in the literature as under the biggest threat. This paper reviews only carbon border adjustments and free emission allowance allocation as leakage mitigation strategies. It can be concluded that, according to the available sources, the former appears to be more effective in reducing leakage. That being said, with a correct allocation method, free emission allowances can also lead to very low leakage rates