Carbon leakage and mitigating measures

MONTERO-PASCUAL, Juan J.; FINGER, Matthias; PETROZZIELLO, Elodie

doi:10.2870/0007736

Carbon leakage and mitigating measures

dc.contributor.author	MONTERO-PASCUAL, Juan J.
dc.contributor.author	FINGER, Matthias
dc.contributor.author	PETROZZIELLO, Elodie
dc.date.accessioned	2025-08-25T10:34:14Z
dc.date.available	2025-08-25T10:34:14Z
dc.date.issued	2025
dc.description	Published online: June 2025
dc.description.abstract	On 14 July 2021, the European Commission adopted a series of legislative proposals implementing its plan to achieve climate neutrality in the EU by 2050. These included an intermediate target of at least a 55% net reduction in greenhouse gas emissions by 2030. The proposal involved changes to various EU climate laws, including the EU Emissions Trading System (ETS), with measures to decarbonise energy-intensive industries and regulations related to transport and land use. It detailed EC plans to achieve the EU climate targets set in the European Green Deal. Industrial installations at significant risk of carbon leakage receive special treatment in the EU ETS to enhance their competitiveness. The EC has also launched a Competitiveness Compass, an essential initiative that provides a strategic and clear framework for three core areas of action: innovation, decarbonisation and security. In March 2025 it also presented a Clean Industrial Deal to boost competitiveness and decarbonisation. In the ‘Fit for 55’ package, the ReFuelEU Aviation Regulation was adopted. The Regulation sets obligations to supply sustainable aviation fuels (SAFs) at Union airports. The Regulation creates a market for SAFs with a long-term perspective by setting targets up to 2050, starting at 2% in 2025 and up at 70% in 2050. Airlines must refuel at least an annual average of 90% of the required fuel volume for outgoing flights at EU airports to avoid circumvention through strategic refuelling outside the EU. If an aviation fuel supplier does not meet the minimum share of SAF supply, penalties will be due and the missing volume must be additionally placed on the market in the following year(s). The Carbon Border Adjustment Mechanism (CBAM) is the EU tool to put a fair price on the carbon emitted during the production of carbon-intensive goods entering the EU and encourage cleaner industrial production in non-EU countries.Therefore, the CBAM is effectively a tool designed to reduce the risks of carbon leakage associated with the EU ETS. The ETS currently has intra-EU scope and ‘stop-the-clock’ has been applied to its potential extension. The Commission is preparing a review of the EU ETS, which will be presented in 2026. Extension of the EU ETS to flights departing from EEAS territory is one option that the Commission is considering. A potential application of CBAM in the aviation sector requires adjustments to the current set-up for stationary installations. For aviation, CBAM could be applied to routes currently not covered by the aviation ETS. This would mean that a carbon price equal to the ETS allowance price in the EU would be applied to the complete journey of passengers or transported goods (from departure to final destination). Potential costs of the CORSIA or costs of other carbon pricing schemes in third countries will be considered for such routes. Based on an initial identification of the potential risk of carbon leakage, other mitigating measures can also be potentially considered. In particular, an EU climate levy linked to an EU fund could be created. The levy would apply to all flights departing from the EEA and be based on the final destination (similar to the ticket tax for passengers in Germany). The levy could be further differentiated by economy and business class. The revenues generated would be earmarked for an EU fund (to decarbonise aviation or to compensate for SAF prices). Alternatively, a levy on SAFs could be introduced on departing flights, with the funds used to compensate for the price gap between fossil kerosene and SAFs, given the ReFuelEU Aviation Regulation obligations for departing flights. The 21st Florence Air Forum, co-organised by the Transport Area of the Florence School of Regulation together with the EC DG MOVE, hosted discussions on carbon leakage risks and the relevance and the potential effectiveness of the CBAM in addressing these risks in the air services sector. It explored the suitability of extending CBAM to air transport services to address carbon leakage and considered the assessment carried out as part of a DG MOVE study on the topic. In addition, it discussed the feasibility of creating an EU climate levy as one of the mitigating measures to reduce carbon leakage. This policy brief builds on the key points addressed during the discussion.
dc.format.mimetype	application/pdf
dc.identifier.doi	10.2870/0007736
dc.identifier.isbn	9789294666765
dc.identifier.issn	2467-4540
dc.identifier.uri	https://hdl.handle.net/1814/93098
dc.language.iso	en
dc.orcid.putcode	1814/80750:190448737
dc.publisher	European University Institute
dc.relation.ispartofseries	EUI
dc.relation.ispartofseries	RSC
dc.relation.ispartofseries	Policy Brief
dc.relation.ispartofseries	2025/18
dc.relation.ispartofseries	Florence School of Regulation
dc.relation.ispartofseries	[Transport]
dc.rights	info:eu-repo/semantics/openAccess
dc.rights.license	Attribution 4.0 International	en
dc.rights.uri	http://creativecommons.org/licenses/by/4.0/
dc.subject	Carbon leakage
dc.subject	CBAM
dc.subject	ETS
dc.subject	SAF
dc.subject	Climate levy
dc.title	Carbon leakage and mitigating measures
dc.type	Other
dspace.entity.type	Publication
person.identifier.orcid	0009-0002-8465-5137
person.identifier.other	27741
person.identifier.other	33074
person.identifier.other	54075
relation.isAuthorOfPublication	0979d3b8-5fe6-42ec-a5cf-d25cc84d06b0
relation.isAuthorOfPublication	ac67c4a3-991f-410f-9fb5-6dd8d7597333
relation.isAuthorOfPublication	9ab5d39c-640c-4d1f-9d31-dc671e4b8c87
relation.isAuthorOfPublication.latestForDiscovery	0979d3b8-5fe6-42ec-a5cf-d25cc84d06b0