Climate policy and carbon leakage: impacts of the European emissions trading scheme on aluminium

Since 2005, the European Union has created an emissions trading scheme (ETS)that caps GHG emissions of power generation, but also of industrial activities whose products, in some cases, are traded internationally. The primary aluminium sector in Europe, whose direct emissions are not capped, stands to lose profit margins and, possibly, market shares, as electricity prices are bound to increase as the constraint on CO2 emissions in power generation results in the pass-through CO2 prices onto electricity prices. This report explores the possible effect of climate policy on the competitiveness of the European primary aluminium sector, a first step towards a more robust method of quantification of this issue. A clear assessment of this question is increasingly important at a time where the European Commission considers measures to limit competitiveness losses driven by climate policy.