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A spatial competitive analysis: the carbon leakage effect on the cement industry under the European Emissions Trading Scheme

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Author Info

  • Elisabetta Allevi

    ()
    (University of Brescia)

  • Giorgia Oggioni

    ()
    (University of Brescia)

  • Rossana Riccardi

    ()
    (University of Brescia)

  • Marco Rocco

    ()
    (Bank of Italy)

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    Abstract

    The 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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    File URL: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td13/td899_13/en_td899/en_tema_899.pdf
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    Bibliographic Info

    Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 899.

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    Date of creation: Jan 2013
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    Handle: RePEc:bdi:wptemi:td_899_13

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    Related research

    Keywords: carbon leakage; cement sector; ETS; generalized Nash game;

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    1. Guy MEUNIER & Jean-Pierre Ponssard, 2012. "A sectoral approach balancing global efficiency and equity," Working Papers 174773, Institut National de la Recherche Agronomique, France.
    2. Guy Meunier & Jean-Pierre Ponssard, 2013. "Capacity decisions with demand fluctuations and carbon leakage," Working Papers hal-00347650, HAL.
    3. 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.
    4. Szabo, Laszlo & Hidalgo, Ignacio & Ciscar, Juan Carlos & Soria, Antonio, 2006. "CO2 emission trading within the European Union and Annex B countries: the cement industry case," Energy Policy, Elsevier, vol. 34(1), pages 72-87, January.
    5. Santamaría, Alberto & Linares, Pedro & Pintos, Pablo, 2014. "The effects of carbon prices and anti-leakage policies on selected industrial sectors in Spain – Cement, steel and oil refining," Energy Policy, Elsevier, vol. 65(C), pages 708-717.
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    Cited by:
    1. Ivan Faiella & Alessandro Mistretta, 2014. "Firms' energy costs and competitiveness in Italy," Questioni di Economia e Finanza (Occasional Papers) 214, Bank of Italy, Economic Research and International Relations Area.

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