IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v255y2017i1d10.1007_s10479-016-2200-x.html
   My bibliography  Save this article

An equilibrium model for the cement sector: EU-ETS analysis with power contracts

Author

Listed:
  • E. Allevi

    (University of Brescia)

  • G. Oggioni

    (University of Brescia)

  • R. Riccardi

    (University of Brescia)

  • M. Rocco

Abstract

The gradual relocation of part of the energy-intensive industries (EIIs) outside of Europe is one of the possible consequences of the combination of emission charges and higher electricity prices entailed by the EU-Emission Trading System (EU-ETS). The geographical distribution of cement plants is a relevant factor in relocation decisions because cement sector is characterized by high transportation costs. In order to mitigate this effect, EIIs have asked for CO $$_2$$ 2 allowance grandfathering and long-term power contracts whereby they would be supplied from dedicated power capacities at a lower price. We model this situation on a prototype cement international market calibrated on ETS regulated and unregulated countries, with a particular focus on the Italian market. The analysis is based on an oligopolistic partial equilibrium model with a detailed technological representation of the whole production process. The model is a Generalized Nash game that accounts for the interactions of cement companies. In particular, we investigate the role played by the transportation costs in the clinker/cement production relocation and evaluates the effectiveness of CO $$_2$$ 2 allowance grandfathering and of the application of long-term power contracts in mitigating this phenomenon. To this aim, we conduct empirical experiments taking into account different transportation costs and progressively higher CO $$_2$$ 2 allowance prices with and without long-term contracts. Our results show that the European and Italian cement markets are affected by the EU-ETS and react by importing clinker from unregulated regions. Both allowance grandfathering and long-term power contracts only partially mitigate this relocation phenomenon.

Suggested Citation

  • E. Allevi & G. Oggioni & R. Riccardi & M. Rocco, 2017. "An equilibrium model for the cement sector: EU-ETS analysis with power contracts," Annals of Operations Research, Springer, vol. 255(1), pages 63-93, August.
    • Handle: RePEc:spr:annopr:v:255:y:2017:i:1:d:10.1007_s10479-016-2200-x
    DOI: 10.1007/s10479-016-2200-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10479-016-2200-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10479-016-2200-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Timothy Laing & Misato Sato & Michael Grubb & Claudia Comberti, 2014. "The effects and side‐effects of the EU emissions trading scheme," Wiley Interdisciplinary Reviews: Climate Change, John Wiley & Sons, vol. 5(4), pages 509-519, July.
    2. Jean Pierre Ponssard & Neil Walker, 2008. "EU emissions trading and the cement sector: a spatial competition analysis," Climate Policy, Taylor & Francis Journals, vol. 8(5), pages 467-493, September.
    3. Oggioni, Giorgia & Smeers, Yves, 2012. "Evaluating the application of different pricing regimes and low carbon investments in the European electricity market," Energy Economics, Elsevier, vol. 34(5), pages 1356-1369.
    4. Oliver Sartor & Clement Palli�re & Stephen Lecourt, 2014. "Benchmark-based allocations in EU ETS Phase 3: an early assessment," Climate Policy, Taylor & Francis Journals, vol. 14(4), pages 507-524, July.
    5. Damien Demailly & Philippe Quirion, 2006. "CO 2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: grandfathering versus output-based allocation," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 93-113, January.
    6. Damien Demailly & Philippe Quirion, 2006. "CO 2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: grandfathering versus output-based allocation," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 93-113, January.
    7. Oggioni, G. & Riccardi, R. & Toninelli, R., 2011. "Eco-efficiency of the world cement industry: A data envelopment analysis," Energy Policy, Elsevier, vol. 39(5), pages 2842-2854, May.
    8. Philippe Quirion & Damien Demailly, 2008. "Changing the Allocation Rules in the EU ETS: Impact on Competitiveness and Economic Efficiency," Working Papers 2008.89, Fondazione Eni Enrico Mattei.
    9. Ferris, Michael C. & Munson, Todd S., 2000. "Complementarity problems in GAMS and the PATH solver," Journal of Economic Dynamics and Control, Elsevier, vol. 24(2), pages 165-188, February.
    10. Pankaj Ghemawat & Catherine Thomas, 2008. "Strategic Interaction Across Countries and Multinational Agglomeration: An Application to the Cement Industry," Management Science, INFORMS, vol. 54(12), pages 1980-1996, December.
    11. Meunier, Guy & Ponssard, Jean-Pierre, 2014. "Capacity decisions with demand fluctuations and carbon leakage," Resource and Energy Economics, Elsevier, vol. 36(2), pages 436-454.
    12. Guy Meunier & Jean-Pierre Ponssard, 2012. "A Sectoral Approach Balancing Global Efficiency and Equity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 53(4), pages 533-552, December.
    13. Francisco Facchinei & Christian Kanzow, 2010. "Generalized Nash Equilibrium Problems," Annals of Operations Research, Springer, vol. 175(1), pages 177-211, March.
    14. Damien Demailly & Philippe Quirion, 2006. "CO2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: Grandfathering vs. output-based allocation," Post-Print halshs-00639327, HAL.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sadayuki, Taisuke & Arimura, Toshi H., 2021. "Do regional emission trading schemes lead to carbon leakage within firms? Evidence from Japan," Energy Economics, Elsevier, vol. 104(C).
    2. Anjos, Miguel F. & Feijoo, Felipe & Sankaranarayanan, Sriram, 2022. "A multinational carbon-credit market integrating distinct national carbon allowance strategies," Applied Energy, Elsevier, vol. 319(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Frédéric Branger & Jean-Pierre Ponssard & Oliver Sartor & Misato Sato, 2015. "EU ETS, Free Allocations, and Activity Level Thresholds: The Devil Lies in the Details," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 2(3), pages 401-437.
    2. Christoph Böhringer & Victoria Alexeeva-Talebi, 2011. "Unilateral climate policy and competitiveness: The implications of differential emission pricing," Working Papers V-338-11, University of Oldenburg, Department of Economics, revised Jun 2011.
    3. Meunier, Guy & Ponssard, Jean-Pierre & Quirion, Philippe, 2014. "Carbon leakage and capacity-based allocations: Is the EU right?," Journal of Environmental Economics and Management, Elsevier, vol. 68(2), pages 262-279.
    4. repec:old:wpaper:338 is not listed on IDEAS
    5. repec:zbw:hohpro:338 is not listed on IDEAS
    6. Jean-Philippe Nicolaï & Jorge Zamorano, 2018. "Windfall Profits Under Pollution Permits and Output-Based Allocation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(4), pages 661-691, April.
    7. Jean-Philippe Nicolaï, 2015. "Emission Reduction and Profit-Neutral Permit Allocations," CER-ETH Economics working paper series 15/224, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    8. Marcin Rabe & Dalia Streimikiene & Yuriy Bilan, 2019. "EU Carbon Emissions Market Development and Its Impact on Penetration of Renewables in the Power Sector," Energies, MDPI, vol. 12(15), pages 1-20, August.
    9. Mohamed Amine Boutabba & Sandrine Lardic, 2017. "EU Emissions Trading Scheme, competitiveness and carbon leakage: new evidence from cement and steel industries," Annals of Operations Research, Springer, vol. 255(1), pages 47-61, August.
    10. Venmans, Frank, 2012. "A literature-based multi-criteria evaluation of the EU ETS," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(8), pages 5493-5510.
    11. Branger, Frédéric & Quirion, Philippe, 2015. "Reaping the carbon rent: Abatement and overallocation profits in the European cement industry, insights from an LMDI decomposition analysis," Energy Economics, Elsevier, vol. 47(C), pages 189-205.
    12. Boehringer Christoph & Fischer Carolyn & Rosendahl Knut Einar, 2010. "The Global Effects of Subglobal Climate Policies," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-35, December.
    13. Martin, Ralf & Muûls, Mirabelle & de Preux, Laure B. & Wagner, Ulrich J., 2014. "On the empirical content of carbon leakage criteria in the EU Emissions Trading Scheme," Ecological Economics, Elsevier, vol. 105(C), pages 78-88.
    14. Monjon, Stéphanie & Quirion, Philippe, 2011. "Addressing leakage in the EU ETS: Border adjustment or output-based allocation?," Ecological Economics, Elsevier, vol. 70(11), pages 1957-1971, September.
    15. Jared C. Carbone & Nicholas Rivers, 2014. "Climate policy and competitiveness: Policy guidance and quantitative evidence," Working Papers 2014-05, Colorado School of Mines, Division of Economics and Business.
    16. Caron, Justin, 2012. "Estimating carbon leakage and the efficiency of border adjustments in general equilibrium — Does sectoral aggregation matter?," Energy Economics, Elsevier, vol. 34(S2), pages 111-126.
    17. Jos Sijm, 2012. "Tradable Carbon Allowances: The Experience of the European Union and Lessons Learned," Chapters, in: Chin Hee Hahn & Sang-Hyop Lee & Kyoung-Soo Yoon (ed.), Responding to Climate Change, chapter 3, Edward Elgar Publishing.
    18. David F. Drake, 2011. "Carbon Tariffs: Impacts on Technology Choice, Regional Competitiveness, and Global Emissions," Harvard Business School Working Papers 12-029, Harvard Business School.
    19. Tan, Xiujie & Liu, Yu & Cui, Jingbo & Su, Bin, 2018. "Assessment of carbon leakage by channels: An approach combining CGE model and decomposition analysis," Energy Economics, Elsevier, vol. 74(C), pages 535-545.
    20. Meredith Fowlie & Mar Reguant & Stephen P. Ryan, 2016. "Market-Based Emissions Regulation and Industry Dynamics," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 249-302.
    21. Nicole A. MATHYS & Jaime DE MELO, 2010. "Trade and Climate Change: The Challenges Ahead," Working Papers P14, FERDI.
    22. Barry Anderson & Corrado Di Maria, 2011. "Abatement and Allocation in the Pilot Phase of the EU ETS," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 48(1), pages 83-103, January.

    More about this item

    Keywords

    Cement sector competitiveness; Complementarity modeling; EU-ETS; Generalized Nash game; Long-term power contracts;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:annopr:v:255:y:2017:i:1:d:10.1007_s10479-016-2200-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.