Carbon leakage and the future of Old Industrial Regions

Abstract

CO2 prices will continue to differ from one country to another even if a global post-Kyoto agreement is achieved. This may decrease the competitiveness of some industries. One of most exposed industries in Europe is iron and steel, as it is highly CO2-intensive and relatively open to international trade. Most studies estimate for this sector a level of relocation ranging from 1.5% to 35%. This might seem a relatively small macroeconomic impact if measured at country or EU level. However, the picture may be quite different if the analysis is conducted at sub-national level. Most of the studies conducted are applied to a large geographical scale when the fact is that in Europe this industry is highly concentrated in certain specific region, i.e.,. the so-called Old Industrial Regions (OIR). This paper seeks to analyze the impact that different levels of relocation of the iron and steel industry have in the OIRs.