Carbon pricing and competitiveness: are they at odds?

This paper reviews ex-post empirical assessments on the impact of carbon pricing on competitiveness in OECD and G20 countries, primarily in the European Union, in the electricity and industrial sectors. Most of these assessments find no statistically significant effects of carbon pricing or energy prices on different dimensions of competitiveness, including net imports, foreign direct investments, turnover, value added, employment, profits, productivity, and innovation. When statistically significant results have been found, the magnitude of such effects tends to be small – either positive or negative. Thus, concerns about negative short-term effects of carbon pricing on firms’ or sectors’ international competitiveness have not come to pass, at least to date. These findings are in part because carbon price levels have been low and because of exemptions to carbon taxes for industry, or generous levels of free allowances to firms covered by emissions trading schemes.

Jane Ellis, Daniel Nachtigall & Frank Venmans (2020) Carbon pricing and competitiveness: are they at odds?, Climate Policy, DOI: 10.1080/14693062.2020.1805291