Efficiency Losses from Overlapping Economic Instruments in European Carbon Emissions Regulation

Arbeitspapier

Energy markets and energy-intensive industries in all EU member states – especially in Germany – are subject to a diverse set of policies related to climate change. We analyse the potential efficiency losses from simultaneous application of emission taxes and emissions trading in qualitative and quantitative terms within a partial equilibrium framework for the EU. It turns out that those firms within the EU Emissions Trading Scheme (EU ETS) which at the same time are subject to domestic energy or carbon taxes will abate inefficiently much while other firms within the EU ETS will benefit from lower international emission permit prices. The same logic disproves the argument that additional national emission taxes will reduce inefficiencies in abatement supposed to be resulting from allowance (over-) allocation. In essence, unilateral emission taxes within the EU ETS are ecologically ineffective and subsidise net permit buyers. Thus, all firms that are subject to emissions trading and any CO2 emission taxes at the same time should be exempt from the latter. The foregone tax revenue could be generated by auctioning a small fraction of the permits instead. This would be cheaper for the emissions trading sectors as a whole and could be compatible even with the tight auctioning restrictions of the EU directive.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ZEW Discussion Papers ; No. 06-018

Classification and Topics

• Classification: Wirtschaft ; Environmental Economics: Government Policy ; Taxation and Subsidies: Incidence ; Taxation and Subsidies: Efficiency; Optimal Taxation ; Allocative Efficiency; Cost-Benefit Analysis
• Subject: emissions trading ; emission taxes ; National Allocation Plans ; Klimaschutz ; Emissionshandel ; Ökosteuer ; Wirtschaftspolitische Wirkungsanalyse ; Umweltschutz ; Allokationseffizienz ; Excess Burden ; Theorie ; EU-Staaten

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Böhringer, Christoph ; Koschel, Henrike ; Moslener, Ulf
• Event: Veröffentlichung
• (who): Zentrum für Europäische Wirtschaftsforschung (ZEW)
• (where): Mannheim
• (when): 2006

Further information

• Handle: http://hdl.handle.net/10419/24210
• Last update: 10.03.2025, 11:43 AM CET