Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/222452
Authors: 
Pollitt, Hector
Neuhoff, Karsten
Lin, Xinru
Year of Publication: 
2020
Citation: 
[Journal:] Climate Policy [ISSN:] 1469-3062 [Volume:] 20 [Issue:] sup1 [Pages:] S74-S89
Abstract: 
The production of basic materials accounts for around 25\% of global greenhouse gas emissions. Existing measures to reduce emissions from industry are limited due to a combination of competitiveness concerns and a lack of technological options available to producers. In this paper, we assess the possibility of implementing a materials charge to reduce demand for basic industrial products and, hence, also reduce industrial emission levels. The modelling shows that a charge equivalent to around €80/tCO2 could reduce the EU’s total (energy plus process) CO2 emissions by up to 10\% by 2050, depending on the substitution options available. The materials charge could lead to small GDP increases and a minor reduction in overall employment levels.Key policy insights Full carbon price pass through along the materials value chain creates incentives for resource efficiency and substitution in the value chain of material use.Most macroeconomic models ignore mitigation opportunities in the value chain, as do carbon pricing mechanisms for industrial emitters, which largely mute incentives for mitigation opportunities with free allowance allocation.Including consumption at a benchmark level in emission trading systems reinstates a full carbon price incentive for all mitigation opportunities while avoiding competitive distortions and carbon leakage risks.Macroeconomic modelling shows that this allows for an additional 10\% emission reduction accompanied by a slight GDP increase and employment reduction. Long-term clarity on carbon leakage protection furthermore strengthens low-carbon investment frameworks.
Subjects: 
Resource efficiency incentives
Carbon pricing
Industrial policy
Macroeconomic modelling
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article
Document Version: 
Published Version






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