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European Emission Trading Scheme and competitiveness: A case study on the iron and steel industry

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  • Demailly, Damien
  • Quirion, Philippe

Abstract

We quantify the impact of the European Emission Trading Scheme (ETS) on the two dimensions of competitiveness - production and profitability - for the iron and steel industry. Among those covered by the scheme, this sector is one of the most exposed, since it is both highly CO2-intensive and relatively open to international trade. We also examine the robustness of these results to various assumptions: marginal abatement cost curve, trade and demand elasticities, as well as pass-through rates and updating of allocation rules, of which the latter two are scarcely debated. We conclude that for this sector, competitiveness losses are small. We prove this conclusion to be robust. Hence arguments against tightening the environmental stringency of the ETS in Phase II are not justified on grounds of competitiveness loss. Our systematic sensitivity analysis allows us to identify the important assumptions for each output variable. It turns out that pass-through rates and updating rules are significant, despite being often implicit and least debated in existing analyses.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 30 (2008)
Issue (Month): 4 (July)
Pages: 2009-2027

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Handle: RePEc:eee:eneeco:v:30:y:2008:i:4:p:2009-2027

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  1. Gernot Klepper & Sonja Peterson, 2004. "The EU Emissions Trading Scheme. Allowance Prices, Trade Flows, Competitiveness Effects," Working Papers 2004.49, Fondazione Eni Enrico Mattei.
  2. Gernot Klepper & Sonja Peterson, 2005. "Emissions Trading, CDM, JI, and More – The Climate Strategy of the EU," Working Papers 2005.55, Fondazione Eni Enrico Mattei.
  3. Winters, L. Alan, 1995. "Liberalizing European steel trade," European Economic Review, Elsevier, vol. 39(3-4), pages 611-621, April.
  4. Gielen, Dolf & Moriguchi, Yuichi, 2002. "CO2 in the iron and steel industry: an analysis of Japanese emission reduction potentials," Energy Policy, Elsevier, vol. 30(10), pages 849-863, August.
  5. Fischer, Carolyn, 2001. "Rebating Environmental Policy Revenues: Output-Based Allocations and Tradable Performance Standards," Discussion Papers dp-01-22, Resources For the Future.
  6. Quirion Philippe & Jean-Charles Hourcade, 2004. "Does the CO2 emission trading directive threaten the competitiveness of European industry? Quantification and comparison to exchange rates fluctuations," Post-Print hal-00643411, HAL.
  7. Hélène Erkel-Rousse & Daniel Mirza, 2002. "Import price elasticities: reconsidering the evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 35(2), pages 282-306, May.
  8. Bohringer, Christoph & Hoffmann, Tim & Manrique-de-Lara-Penate, Casiano, 2006. "The efficiency costs of separating carbon markets under the EU emissions trading scheme: A quantitative assessment for Germany," Energy Economics, Elsevier, vol. 28(1), pages 44-61, January.
  9. Burtraw, Dallas & Palmer, Karen & Bharvirkar, Ranjit & Paul, Anthony, 2001. "The Effect of Allowance Allocation on the Cost of Carbon Emission Trading," Discussion Papers dp-01-30-, Resources For the Future.
  10. Klepper, Gernot & Peterson, Sonja, 2004. "The EU emissions trading scheme allowance prices, trade flows and competitiveness effects," Open Access Publications from Kiel Institute for the World Economy 3270, Kiel Institute for the World Economy (IfW).
  11. Michel Fouquin & Nanno Mulder & Laurence Nayman & Khalid Sekkat & Joffrey Malek Mansour, 2001. "Sector Sensitivity to Exchange Rate Fluctuations," Working Papers 2001-11, CEPII research center.
  12. Hiau Looi Kee & Nicita, Alessandro & Olarreaga, Marcelo, 2004. "Import demand elasticities and trade distortions," Policy Research Working Paper Series 3452, The World Bank.
  13. repec:fth:iniesr:556 is not listed on IDEAS
  14. Richard A. Lord & W. Ken Farr, 2003. "Collusion and Financial Leverage: An Analysis of the Integrated Mill Steel Industry," Financial Management, Financial Management Association, vol. 32(1), Spring.
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