POLICY CHALLENGE

SUMMARY Europe specialises more than its main global competitors in indus-tries with relatively high carbon emissions, such as minerals and chemicals, rather than in high-tech industries and services. This would have a real effect on Europe’s competitiveness in a world regulated by carbon pricing schemes such as the EU’s Emissions Trading Scheme – even if other blocs apply them as the EU does. Furthermore, in the absence of fair and undistorting carbon pricing schemes worldwide, there is a real risk that business will resort to regulatory arbitrage which will entail a shift in where emissions take place – but no reduction in global emissions. In any case, the issue of which econo-mies are ‘carbon competitive ’ will gradually become a much bigger part of the global trade conversation