New research from CEPR shows that direct emissions alone misjudge which industries suffer most under carbon pricing. Using a network model of the economy, the authors find that sectors like utilities that buy carbon-intensive inputs face higher exposure than their own smokestack emissions suggest. A carbon tax climbing to $1,300 per tonne by 2050 would reshuffle winners and losers through supply chains, not just direct emitters. The study introduces a metric called downstream emission centrality (DEC) that captures both direct and indirect exposure. It explains over 99% of cross-sector price variation, versus 88% for direct intensity alone. Sectors like primary metals and other utilities are more exposed than direct emissions rankings show, while transportation is less exposed than expected. As the EU phases out free allowances for carbon leakage between 2026 and 2034, the paper argues that support should target sectors flagged by DEC, not just the largest direct emitters. That could make the transition fairer and more efficient.
