Arbeitspapier

Economic Implications of Alternative Allocation Schemes for Emission Allowances: A Theoretical and Applied Analysis

Political feasibility of emission trading systems may crucially depend on the free initial allocation of emission allowances to energy-intensive industries in order to ameliorate adverse production and employment effects. We investigate the potential trade-off between such compensation and economic efficiency for alternative allocation rules where emission allowances are based on either emissions or output. Based on analytical partial equilibrium and numerical general equilibrium analysis, we show that in open trading systems the trade-off becomes the more severe, the higher the international permit price is. Whenever the permit price can be considered exogenous to firms or industries, the output-based allocation rule is distinctly less costly than the emission-based rule to preserve output and employment in energy-intensive sectors. The reason is that emission-based allocation of allowances not only provides an implicit output subsidy but also lowers the effective price of emission inputs to regulated firms. Emissionbased allocation is particularly expensive towards higher international permit prices where the implicit subsidies to emission use in energy-intensive sectors produce drastic efficiency losses, since they imply high expenditures for carbon permit imports rather than high net revenues from efficient carbon permit exports.

Sprache
Englisch

Erschienen in
Series: ZEW Discussion Papers ; No. 03-22

Klassifikation
Wirtschaft
Computable and Other Applied General Equilibrium Models
Taxation and Subsidies: Efficiency; Optimal Taxation
Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Thema
computable general equilibrium
emissions trading
allowance allocation
Umweltzertifikat
Umweltbelastung
Genehmigung
Allokation
Wirtschaftspolitische Wirkungsanalyse
Allgemeines Gleichgewicht
Theorie

Ereignis
Geistige Schöpfung
(wer)
Böhringer, Christoph
Lange, Andreas
Ereignis
Veröffentlichung
(wer)
Zentrum für Europäische Wirtschaftsforschung (ZEW)
(wo)
Mannheim
(wann)
2003

Handle
Letzte Aktualisierung
10.03.2025, 11:41 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Böhringer, Christoph
  • Lange, Andreas
  • Zentrum für Europäische Wirtschaftsforschung (ZEW)

Entstanden

  • 2003

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