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The impact of CO2 emissions trading on firm profits and market prices

Smale, Robin, Hartley, Murray, Hepburn, Cameron, Ward, John and Grubb, Michael (2006) The impact of CO2 emissions trading on firm profits and market prices. Climate Policy, 6 (1). pp. 31-48. ISSN 1469-3062

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Abstract

The introduction of mandatory controls and a trading scheme covering approximately half of all carbon dioxide emissions across Europe has triggered a debate about the impact of emissions trading on the competitiveness of European industry. Economic theory suggests that, in many sectors, businesses will pass on costs to customers and make net profits due to the impact on product prices combined with the extensive free allocations of allowances. This study applies the Cournot representation of an oligopoly market to five energy-intensive sectors: cement, newsprint, steel, aluminium and petroleum. By populating the model with empirical data, the results are shown for three future emissions price scenarios. The results encompass the extent of cost pass-through to customers, changes in output, changes in UK market share, and changes in firm profits. The results suggest that most participating sectors would be expected to profit in general, although with a modest loss of market share in the case of steel and cement, and closure in the case of aluminium.

Item Type: Article
Official URL: http://www.earthscan.co.uk/tabid/480/Default.aspx
Additional Information: © 2006 Earthscan
Library of Congress subject classification: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Grantham Research Institute on Climate Change and the Environment
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 01 Mar 2011 16:06
URL: http://eprints.lse.ac.uk/32960/

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