Report on economic fundamentals of trade-related climate policy measures

The ENTRACTE research project aims to analyse the European climate policy portfolio with special emphasis on the role of interactions between different policy instruments. The project’s ultimate goal is to provide pragmatic guidance to policy makers for designing effective, cost efficient and politically and legally feasible climate policy portfolios.

This report summarizes the status quo regarding the understanding of carbon leakage and provides a literature review on the available empirical evidence on carbon leakage. A review of legal arguments concerning the compatibility of WTO regulation and approaches suggested to reduce carbon leakage and enhance competitiveness is also provided. Finally it collects proposed instruments to address carbon leakage and analyzes them in a formal framework to understand under which conditions they can affect leakage and competitiveness.

Author: Beatriz Gaitan Soto