Carbon Leakage in the Primary Aluminium Sector : What evidence after 6 1⁄2 years of the EU ETS ?

This paper provides an empirical analysis of the evidence of carbon leakage from the European primary aluminium industry during the first 6 ½ years of the European Union Emissions Trading Scheme (EU ETS). The findings suggest that while rising electricity prices in several major producer countries in the EU have played a critical role in the rise in net imports of EU primary aluminium into the EU in recent years, the role of CO2 costs in this equation has been more limited than was expected in the ex-ante literature. Other factors, including rising primary energy prices and difficulties for primary smelters in obtaining long-term electricity-supply contracts, appear to have been more economically important factors than the relatively low CO2 costs which have been witnessed so far.