With the recent passage of the Carbon Border Adjustment Mechanism (CBAM), the free allocation of emission permits under the EU Emissions Trading System (EU ETS) that currently acts as a safeguard against emissions leakage and industrial relocation will progressively be phased out. Because the CBAM only covers imports, however, European goods exported into global markets stand to become more vulnerable to emissions leakage.
This project analyzed different policy options that could counteract such export-related leakage, but which are problematic in different ways in terms of their environmental, political, and legal implications. The analysis identifies targeted innovation support as a promising option because it minimizes legal and political risks while also offering climate benefits beyond leakage protection for European industry. Guiding principles for technology support measures were derived.