Inclusion of Consumption of carbon intensive materials in emissions trading: An option for carbon pricing post-2020


Inclusion of Consumption of selected carbon intensive materials in emission trading avoids complexity and provides a consistent solution from a governance, business, and environmental perspective. For materials covered by the consumption charge, allocation to installations needs to be at the full benchmark level and linked to recent production volumes to avoid double charging and wind-fall profits. Thus Inclusion of Consumption offers early and long term clarity on allocation volumes for industry, and a transparent criterion for differentiation of free allowance allocation volumes. This eliminates regulatory uncertainty for business and makes the full carbon price relevant for all corporate choices thus reducing complexity. From an environmental effectiveness perspective, this option provides robust carbon leakage protection and this opens the space for constructive discussions on decarbonization pathways and the necessary stringency of the scheme. This study explored the economic implications for different products and value chains and analyzed the relevant international experience.

Climate Strategies Report