Competitiveness of the EU steel sector Sample Clauses

Competitiveness of the EU steel sector. The EU steel sector fears a serious impact on their competitiveness position if the EU undertakes unilateral climate change policy actions. One important question in this respect is what competitiveness exactly implies. The debate about competitiveness issues from unilateral environmental policies is at least a dozen years old and started with Xxxxx et al. (1995). With respect to firms, competitiveness may be defined as the ability of the firm to maintain its operations in a given market. This ability is difficult to measure beforehand but various cost-concepts (such as additional costs over net profits or the cost price increase of the products) have been developed which may give a hint on the impact of environmental regulation on profit margins (see OECD, 1993 for various concepts).55 If the costs of environmental regulation “eats out” profits, firms will close. If the profitability of firms falls under certain thresholds, capital will flow to other, more profitable, investments and the future of the production facility may be at stake. When companies try to maintain their profits and increase prices another problem emerges: under certain conditions this will fuel import substitution and replace products of companies under environmental regulation with products from companies that are not affected by environmental regulations. Given the fact that GHG emissions are a global problem, a shift in production in a country under a CO2 cap not accompanied by an accommodated shift in consumption simply implies carbon leakage. The risk of carbon leakage has dominated the debate on EU-ETS currently. Recent economic modeling efforts (see e.g. CPB, 2008) have suggested that the risk of carbon leakage due to the shift of production from countries with a cap on CO2 to countries with no climate change policies is rather low. Energy intensive industries are generally characterized by high sunk costs and the relatively high costs of transport relative to the value of their products acts as a natural trade barrier. However, it should be noted that such modeling efforts are mainly focusing on the effects on the medium-term (e.g. 10-20 years ahead) and most economic models are stylized facts of real-world relationships. Longer-term effects are by definition more uncertain. Moreover, if EU-ETS raises carbon prices considerably (e.g. above €60/ton CO2), the risk of carbon leakage becomes considerably higher. The present study does not take a position in the debate about the ex...