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Output-based allocation as a form of protection for internationally competitive industries

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  • Erik Haites

Abstract

Policies adopted by Annex B Parties to reduce their greenhouse gas (GHG) emissions are likely to increase costs for industries vulnerable to international competition in domestic or export markets. Domestic emissions trading, by enabling the aggregate emissions target to be met at least cost, helps to reduce the adverse impacts on these industries. An output-based allocation of allowances reduces the output decline due to imposition of the emissions trading program relative to a lump-sum (historic) allocation and so helps reduce the adverse impacts on these industries. The effectiveness of an output-based allocation in maintaining production must be assessed empirically because it depends on the characteristics of all of the firms covered by the trading program as well as other factors. Modeling results for a possible emissions trading program for Alberta confirm the expected impacts of an output-based allocation and indicate that the effectiveness varies across industries. While encouraging greater production, an output-based allocation lowers profits relative to a lump-sum allocation and leads to a different distribution of costs. Other policy options for reducing the output decline in industries vulnerable to international competition include lump-sum allocations or auctioned allowances combined with assistance programs for emission reduction actions or a requirement to meet "world best" emission performance standard. These policy options should be compared with an output-based allocation in terms of effectiveness, total cost and other impacts, before a policy is adopted.© 2003 Elsevier Ltd. All rights reserved.

Suggested Citation

  • Erik Haites, 2003. "Output-based allocation as a form of protection for internationally competitive industries," Climate Policy, Taylor & Francis Journals, vol. 3(sup2), pages 29-41, December.
    • Handle: RePEc:taf:tcpoxx:v:3:y:2003:i:sup2:p:s29-s41
    DOI: 10.1016/j.clipol.2003.09.009
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    Citations

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    Cited by:

    1. Frédéric Branger & Misato Sato, 2017. "Solving the clinker dilemma with hybrid output-based allocation," Climatic Change, Springer, vol. 140(3), pages 483-501, February.
    2. Knut Einar Rosendahl & Halvor Briseid Storrøsten, 2011. "Output-based allocation and investment in clean technologies," Discussion Papers 644, Statistics Norway, Research Department.
    3. Ji, Xiang & Li, Guo & Wang, Zhaohua, 2017. "Allocation of emission permits for China’s power plants: A systemic Pareto optimal method," Applied Energy, Elsevier, vol. 204(C), pages 607-619.
    4. 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.
    5. Goulder, Lawrence H. & Long, Xianling & Lu, Jieyi & Morgenstern, Richard D., 2020. "China’s Unconventional Nationwide CO₂ Emissions Trading System: The Wide-Ranging Impacts of an Implicit Output Subsidy," RFF Working Paper Series 20-02, Resources for the Future.
    6. Leon Vinokur, 2009. "Environmental Policy under Ambiguity," Working Papers 638, Queen Mary University of London, School of Economics and Finance.
    7. Leon Vinokur, 2009. "Environmental Policy under Ambiguity," Working Papers 638, Queen Mary University of London, School of Economics and Finance.
    8. Goulder, Lawrence H. & Long, Xianling & Lu, Jieyi & Morgenstern, Richard D., 2022. "China's unconventional nationwide CO2 emissions trading system: Cost-effectiveness and distributional impacts," Journal of Environmental Economics and Management, Elsevier, vol. 111(C).
    9. Ahman, Markus & Burtraw, Dallas & Kruger, Joseph & Zetterberg, Lars, 2005. "The Ten-Year Rule: Allocation of Emission Allowances in the EU Emission Trading System," Discussion Papers 10637, Resources for the Future.
    10. Demailly, Damien & Quirion, Philippe, 2008. "Changing the Allocation Rules in the EU ETS: Impact on Competitiveness and Economic Efficiency," Climate Change Modelling and Policy Working Papers 46623, Fondazione Eni Enrico Mattei (FEEM).
    11. Jiasen Sun & Yelin Fu & Xiang Ji & Ray Y. Zhong, 2017. "Allocation of emission permits using DEA-game-theoretic model," Operational Research, Springer, vol. 17(3), pages 867-884, October.
    12. Lawrence H. Goulder & Xianling Long & Jieyi Lu & Richard D. Morgenstern, 2019. "China's Unconventional Nationwide CO₂ Emissions Trading System: The Wide-Ranging Impacts of an Implicit Output Subsidy," NBER Working Papers 26537, National Bureau of Economic Research, Inc.
    13. Jie Wu & Qingyuan Zhu & Junfei Chu & Qingxian An & Liang Liang, 2016. "A DEA-based approach for allocation of emission reduction tasks," International Journal of Production Research, Taylor & Francis Journals, vol. 54(18), pages 5618-5633, September.
    14. Ahman, Markus & Burtraw, Dallas & Kruger, Joseph & Zetterberg, Lars, 2007. "A Ten-Year Rule to guide the allocation of EU emission allowances," Energy Policy, Elsevier, vol. 35(3), pages 1718-1730, March.

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