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On the empirical content of carbon leakage criteria in the EU emissions trading scheme

Martin, Ralf, Muuls, Mirabelle, de Preux, Laure B. and Wagner, Ulrich J. (2014) On the empirical content of carbon leakage criteria in the EU emissions trading scheme. Ecological Economics, 105. pp. 78-88. ISSN 0921-8009

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Identification Number: 10.1016/j.ecolecon.2014.05.010

Abstract

The EU Emissions Trading Scheme continues to exempt industries deemed at risk of carbon leakage from permit auctions. Carbon leakage risk is established based on the carbon intensity and trade exposure of each 4-digit industry. Using a novel measure of carbon leakage risk obtained in interviews with almost 400 managers at regulated firms in six countries, we show that carbon intensity is strongly correlated with leakage risk whereas overall trade exposure is not. In spite of this, most exemptions from auctioning are granted to industries with high trade exposure to developed and less developed countries. Our analysis suggests two ways of tightening the exemption criteria without increasing relocation risk among non-exempt industries. The first one is to exempt trade exposed industries only if they are also carbon intensive. The second one is to consider exposure to trade only with less developed countries. By modifying the carbon leakage criteria along these lines, European governments could raise additional revenue from permit auctions of up to €3. billion per year, based on a permit price of €30.

Item Type: Article
Official URL: http://www.sciencedirect.com/
Additional Information: © 2014 The Authors © CC BY 3.0
Divisions: Centre for Economic Performance
Subjects: G Geography. Anthropology. Recreation > GE Environmental Sciences
H Social Sciences > H Social Sciences (General)
JEL classification: F - International Economics > F1 - Trade > F18 - Trade and Environment
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H23 - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H25 - Business Taxes and Subsidies
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q52 - Pollution Control Costs; Distributional Effects; Employment Effects
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q5 - Environmental Economics > Q54 - Climate; Natural Disasters
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 08 Jul 2014 11:47
Last Modified: 20 Sep 2019 01:52
Projects: 09-146/BG, PDF/2008/578 (Martin), ECF-2011-622 (Muûls), SEJ2007-62908 (Wagner), ECO2012-31358 (Wagner)
Funders: European Climate Foundation, British Academy, Leverhulme Trust, Spanish Government, Spanish Government, Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/57538

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