{"id":28533,"title":"How a High EU Carbon Price Can Divide the EU Economically","link":"https:\/\/bst-europe.eu\/de\/economy-security-trade\/how-a-high-european-carbon-price-can-divide-the-eu-economically\/","date":"5. Oktober 2021","date_unix":1633438935,"date_modified_unix":1754483697,"date_iso":"2021-10-05T13:02:15+00:00","content":"

This summer, we published a study on the consequences of a higher carbon price in the EU<\/a>. The effects on the real gross domestic product (GDP) of the EU as a whole were small. In contrast, above-average GDP declines were calculated for the Eastern European economies.<\/strong> Economically, the EU is in danger of drifting apart<\/strong> as a result.<\/p>\n

Consequences of a higher carbon price for the EU<\/strong><\/h2>\n

To ensure that the EU can achieve its ambitious climate protection targets, the prices for greenhouse gas emissions will rise<\/strong> noticeably in the coming years. In the study mentioned above, we simulated the effects of a $50 higher carbon price in the EU.<\/p>\n

A higher carbon price makes carbon-intensive<\/strong> products more expensive. Consumers reduce their demand for these products. Companies adjust to lower demand. Production declines, and so does GDP.<\/p>\n

Low-emission<\/strong> products, e.g., services, on the other hand, are becoming cheaper in relative terms. As a result, demand for these products is increasing, and so is production. Therefore, real GDP rises.<\/p>\n

It is not possible to say in advance which effects<\/strong> will predominate. The simulation calculations show: On average, real GDP in all 27 EU countries remains virtually unchanged, falling by just 0.01 percent. However, there are regional differences.<\/p>\n

\"chart<\/p>\n

Change in real GDP in the EU as a result of a $50 higher carbon price in the EU, data in percent. Source: Mahlkow et al. 2021.<\/p>\n

The Eastern European<\/strong> economies suffered the sharpest declines in GDP. In Latvia, the decline is almost 0.4 percent, Poland 0.33 percent, and Bulgaria 0.25 percent. The reason for these above-average declines is the fact that these economies have a particularly emissions-intensive economic structure.<\/p>\n

In addition, there are also EU member states whose real GDP increase as a result of a higher carbon price. These include, for example, EU countries with a relatively high share of services, e.g., Ireland, the Netherlands, and Cyprus.<\/p>\n

Although there are noticeable differences in GDP development, all countries‘ calculated GDP losses are quite moderate. The situation is different when the effects on individual sectors<\/strong> of the economy are taken into account.<\/p>\n

Sectoral effects of a higher carbon price<\/strong><\/h2>\n

A look at the sectoral effects of a $50 higher carbon price in the EU reveals – unsurprisingly – that the fossil fuel sectors suffer the most significant production declines. Regionally, the Eastern European economies are again the most affected. The table below shows the 20 largest overall sectoral production losses across all 141 economies and all 65 sectors covered by the simulation model.<\/p>\n

The 20 largest sectoral output losses<\/strong> of all 141 countries and 65 sectors in the case of a $50 higher carbon price in the EU, data in percent.<\/p>\n

\"chart<\/p>\n

Source: Mahlkow et al. 2021. Explanation: The „gas“ sector includes all natural gas production activities. The „gas production“ sector includes the further processing of gas, e.g., the production of liquefied gas and the distribution.<\/p>\n

Carbon price plus carbon tariff<\/strong><\/h2>\n

To reduce the outlined economic losses in the EU, a carbon tariff<\/strong> is an option. Products imported from a non-EU country and sold in the EU would be subject to an emissions levy or carbon tariff. The EU proposed this instrument in summer 2021, but initially only for a few emissions-intensive products such as cement, iron and steel, aluminum, fertilizers, and electricity<\/a>.<\/p>\n

The tariff corresponds to the carbon price<\/strong> applicable in the EU. The total amount payable is based on the volume of emissions resulting from the production of that product abroad. All products sold in the EU are charged the emission price that applies in the EU – regardless of whether the product originates in the EU or the rest of the world.<\/p>\n

The following table shows the GDP changes with and without a carbon tariff for the most affected Eastern European<\/strong> EU countries. At first glance, the comparison is surprising: Above all, the energy-intensive Eastern European economies are protected by a carbon tariff. However, their GDP losses will be even larger.<\/p>\n

\"carbon<\/p>\n

Change in EU real GDP as a result of a $50 higher carbon price in Eastern European EU countries, with and without carbon tariff, data in percent. Source: Mahlkow et al. 2021.<\/p>\n

At second glance, however, this result is not surprising<\/strong>. It is an outcome predicted by foreign trade theory: when a country introduces an import tariff to protect a particular domestic industry, it comes at a cost to the economy as a whole.<\/p>\n