The competitiveness effects of the EU climate policy

To show global leadership and to foster the international negotiations for a long term international climate regime the EU has decided to reduce its GHG emissions by 20% relative to 1990 until the year 2020. These reductions will even rise to 30% “if there is an international agreement committing other developed countries to comparable emission reductions and economically more advanced developing countries to contributing adequately according to their responsibilities and respective capabilities”. At the same time, the European council started in 2000 the so-called Lisbon process which established the issue of competitiveness as a priority area for EU policy and there is some concern about the competitiveness effects of EU climate policy. We use the multi-sector, multi-region computable general equilibrium model DART to assess the impacts of the recent EU climate policy proposals for the competitiveness of the European economies and specific sectors. There are three general insights. First, the effects of EU climate policies on competitiveness are relatively small if one leaves out the fossil fuels themselves the consumption of which is supposed to be reduced anyway. The losses of the energy intensive industries are compensated by gains in other manufacturing sectors. Secondly, there is no uniform effect across the member states of the EU. It is the special circumstances in side the different sectors within the member states that determine whether a sector wins or looses competitiveness. And finally, the changes in competitiveness are strongly influenced by the choice of the particular policy design. A more efficient instrument choice not only reduces the competitiveness effects it also distributes the burden more equally.