What happens when a climate policy is approved but companies don’t believe it has a future? This is the question behind the article “The Cost of (In)Credibility: Anticipation, Surprise, and the Investment Channel of the YO Carbon Border Adjustment Mechanism,” written by IDEGA researcher Andrés González Rodríguez, which has received the 9th Emilio Fontenla Prize.
The award recognized the work as the best article by emerging researchers presented at the 9th Input-Output Analysis Conference held in Seville from June 22 to 26, 2016. “It’s an academic prize and it comes at an opportune moment, with the thesis submitted and the defense on the horizon. I interpret it as a sign that the approach to the work is sound and that the topic is relevant within the discipline,” says González. Furthermore, he adds that it is an “incentive to continue working in this line of research; it is recognition of the Fisheries Economics and Natural Resources Group (ECOPESCA) and the Economic Analysis and Modeling Group (GAME).”
González is an economist and is in the final stages of his doctoral studies. He currently works in an area at the intersection of international trade and environmental policy. “What interests me is understanding how climate policies affect each productive sector very differently; steel is not the same as chemicals or fishing, nor is it the same how trade transmits these effects from one country to another.” In his dissertation, he addresses these questions with models that allow him to simulate the global economy and identify who wins, who loses, and through what channels.
The specific case that González is studying is the Carbon Border Adjustment Mechanism (CBAM), which is gradually phasing out the free emission allowances that industry received between 2026 and 2034. The 2029 European elections fall within this timeframe, opening a window for a new majority to review the policy before the most drastic cuts take effect. “For this reason, companies don’t decide how much to invest based on current policy; instead, they wait a few years. If they believe in the timeline, they gradually adjust their capital. If not, they don’t make this advance adjustment.”
In this regard, the researcher explains that even if the legislator adheres to the regulations “to the letter,” companies reach the crucial point with the wrong amount of capital, since they invested as if the policy had no effect. In quantitative terms, González estimates that the result of this “cost of mistrust” is a loss of up to 27 million tons of CO2 savings in the European Union and around 88 million tons globally. As a result, the most carbon-intensive producers outside of Europe gain market share, with Russia leading the way in steel and aluminum. “Distrust in European climate policy ultimately benefits the biggest polluters. The underlying message is that credibility is not just an embellishment of climate policy, but an integral part of its design, as important as the timeline itself. For a policy to work, it’s not enough to simply approve it; those who have to invest must believe that it will be maintained.”
