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Efficiency and Sectoral Distributional Impacts of Output-Based Emissions Allowances in Canada

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  • Dissou Yazid

    ()
    (University of Ottawa)

Abstract

Emissions trading with output-based allocation (OBA) of emissions allowances is gaining popularity as a mean to address sectoral distribution issues related to the use of market-based instruments in pollution control. Using a dynamic general equilibrium framework, this paper assesses the potential trade-off between efficiency and uneven sectoral distributional effects. It compares OBA and other alternative emissions trading systems, with special attention to the heterogeneity among energy-intensive industries. Because abatement is achieved at a higher marginal cost with OBA, it is less efficient than emissions trading systems in which permit revenues are used to reduce payroll taxes. Nonetheless, the implicit output subsidy in OBA improves the sectoral distributional outcome of the abatement policy to the benefit of energy-intensive industries as a whole. The simulation results also suggest that energy-intensive industries that do not produce energy are the main beneficiaries of OBA. In the new carbon-constrained environment, energy intensive industries that produce energy could not benefit from OBA.

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File URL: http://www.degruyter.com/view/j/bejeap.2005.5.issue-1/bejeap.2006.5.1.1506/bejeap.2006.5.1.1506.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 5 (2006)
Issue (Month): 1 (September)
Pages: 1-33

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Handle: RePEc:bpj:bejeap:v:contributions.5:y:2006:i:1:n:26

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Web page: http://www.degruyter.com

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Cited by:
  1. Araar, Abdelkrim & Dissou, Yazid & Duclos, Jean-Yves, 2011. "Household incidence of pollution control policies: A robust welfare analysis using general equilibrium effects," Journal of Environmental Economics and Management, Elsevier, vol. 61(2), pages 227-243, March.
  2. Shiro Takeda & Toshi Arimura & Hanae Tamechika & Carolyn Fischer & Alan Fox, 2014. "Output-based allocation of emissions permits for mitigating the leakage and competitiveness issues for the Japanese economy," Environmental Economics and Policy Studies, Society for Environmental Economics and Policy Studies - SEEPS, vol. 16(1), pages 89-110, January.
  3. Dissou, Yazid & Eyland, Terry, 2011. "Carbon control policies, competitiveness, and border tax adjustments," Energy Economics, Elsevier, vol. 33(3), pages 556-564, May.

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