Report on International Competitiveness
This “Report on International Competitiveness” provides input for the Commission’s review of
Directive 2003/87/EC on emissions trading.1
This document presents a non-exhaustive view of the potential impact of implementing the
Kyoto Protocol targets with the EU Emissions Trading Scheme (EU ETS) on the international
competitiveness of industries, based on assumptions and economic dynamics valid as of
today.
The measure used in this analysis in order to detect a change in international competitiveness
is a change in operating margin2 resulting from a change in output, and/or a change in costs,
and/or a change in prices. In this analysis, changes in margins are expressed as a percentage
of total cost.
Production decisions are, however, not based on average industry or company’s margins, but
on the individual company’s marginal costs for the last unit produced. Production decisions
are ultimately driven by the value of CO2 allowances, because a company can sell any surplus
rights it may have at a profit. Therefore, even for an industry in which EU ETS has zero impact
on company profit margins, it cannot be assumed that there will be no shifting of production
into regions without CO2 costs.
“International competitiveness” is defined in this report as “extra-Community
competitiveness”. Changes in intra-Community competitiveness have not been analysed.
All cost and earnings figures provided are outside-in estimates based on public information
and McKinsey expert estimates and therefore reflect typical average cost and earnings data
for the industries examined. The figures can be different for specific market participants. In
addition, data are based on regional averages and can vary for different geographical subregions.
As a result, the impacts on industries as laid out in this report represent average
effects and can vary significantly for individual players.