CarLeaP

The European chemical industry faces severe economic pressure due to high energy and raw material costs, global overcapacities, and rising carbon costs within the European Union Emissions Trading System (EU-ETS). Without effective protective mechanisms, there is a risk of shifting production capacities to third countries – along with the associated greenhouse gas emissions (carbon leakage). In the CarLeaP research project, the Wuppertal Institute investigates instruments designed specifically to protect against carbon leakage. The primary objective is to identify policy options that enable a successful transition to climate neutrality without jeopardising the international competitiveness of domestic value chains.

To this end, the report first contextualises the current situation of the European chemical industry and its key challenges – such as the adjacent phenomenon of "renewables pull" – and provides an overview of the scientific literature as well as existing regulatory frameworks. Building on this, the researchers compare options such as an extension of the Carbon Border Adjustment Mechanism (CBAM), an economically calibrated climate tariff (the Leakage Border Adjustment Mechanism, or LBAM for short), and a material consumption charge also known as Clean Industry Contribution (CIC). The researchers take particular account of the instruments’ protective effects against carbon leakage, the impact on site competitiveness, and political feasibility. As a practical solution, the authors propose to further explore the combination of a CBAM for chemical base products (including polymers) combined with an LBAM for downstream products as a particularly promising option.