To what extent do import dependence, energy and carbon intensity, and the EU ETS carbon price each drive CO₂ emissions in the CBAM-covered sectors of the European Union?

Details

Supervisors

Willems, Bert

Faculty

Louvain School of Management

Degree label

Master [120] : ingénieur de gestion, à finalité spécialisée

Abstract

enThis thesis explores the evolution of carbon pricing within the European Union, from the Kyoto Protocol to the establishment of the EU Emissions Trading System (EU ETS) and the forthcoming Carbon Border Adjustment Mechanism (CBAM). It examines key concepts such as carbon leakage, the relocation of production to jurisdictions with weaker climate policies, and the system of free allowances designed to mitigate competitiveness risks. By reviewing these policy developments, the study provides the theoretical and institutional background needed to understand the EU’s approach to balancing climate ambition with industrial competitiveness. Building on this framework, the empirical analysis investigates to what extent import dependence, energy and carbon intensity, and the EU ETS carbon price each drive CO₂ emissions in the CBAM-covered sectors of the European Union. Using a within-sector fixed-effects panel model on three highly energy-intensive industries (NACE C20, C23, C24) over 2017–2020, the results show that greater import exposure and higher carbon intensity are associated with higher emissions, while improvements in energy efficiency have a strong negative effect. Carbon pricing also contributes to reducing emissions, although the effect is less pronounced. These findings provide empirical support for the CBAM’s focus on sectors combining high trade exposure with significant carbon intensity, and emphasise the value of complementing the mechanism with targeted incentives for energy efficiency and innovation.