Climate change and competitiveness

Competitiveness concerns were the explicit prime motivation for the withdrawal of the US from the Kyoto Process. [...] They have also figured large in the climate-related policy debates in the EU, where they effectively scuttled the EC’s 1992 proposed Directive on Carbon Tax, and have continued to dog the elaboration and implementation of the EU’s Emissions Trading System (ETS). [...] The question to be explored in this paper is, then: how will the implementation of the Kyoto Protocol affect the competitiveness of the Parties’ firms or sectors? [...] The ability to pass cost increases along to consumers as increased price of the sector’s final product: This ability depends fundamentally on the availability of substitutes, either in the form of other goods that satisfy the same needs, or in the form of production from foreign firms in the same sector. [...] At the firm level, as opposed to the sectoral level, the degree of domestic competition is also important; other things being equal, the more monopoly power, the better able a firm is to pass along cost increases in the form of increased prices.