A spatial competitive analysis: the carbon leakage effect on the cement industry under the European Emissions Trading Scheme
AbstractThe European Emissions Trading Scheme (ETS) is a cap and trade system to curb CO2 emissions. It has caused both direct costs (CO2 allowances) and indirect costs (higher electricity prices) to energy-intensive industries. Moreover, as there is no global CO2 agreement, the ETS could distort the European economy, prompting energy-intensive industries to relocate production to unregulated countries: the “carbon leakage” effect. This paper investigates the impact of ETS on the cement industry, focusing on Italy, the second European producer, analyzing a Cournot oligopolistic partial equilibrium model with a detailed technological representation of the market. Simulation results show that the European and Italian cement markets are subject to carbon leakage, especially where carbon regulation is more stringent and where plants are located near the seacoast. Further, transportation costs - particularly high in the cement sector - significantly affect the rate of carbon leakage.
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Bibliographic InfoPaper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 899.
Date of creation: Jan 2013
Date of revision:
carbon leakage; cement sector; ETS; generalized Nash game;
Find related papers by JEL classification:
- C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
- D43 - Microeconomics - - Market Structure and Pricing - - - 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-02-08 (All new papers)
- NEP-CMP-2013-02-08 (Computational Economics)
- NEP-ENE-2013-02-08 (Energy Economics)
- NEP-ENV-2013-02-08 (Environmental Economics)
- NEP-EUR-2013-02-08 (Microeconomic European Issues)
- NEP-GEO-2013-02-08 (Economic Geography)
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