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Industry Compensation Under Relocation Risk: A Firm-Level Analysis of the EU Emissions Trading Scheme

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  • Ralf Martin
  • Mirabelle Muûls
  • Ulrich J. Wagner
  • Laure B. de Preux

Abstract

When industry compensation is offered to prevent relocation of regulated firms, efficiency requires that payments be distributed across firms so as to equalize marginal relocation probabilities, weighted by the damage caused by relocation. We formalize this fundamental economic logic and apply it to analyze industry compensation rules proposed under the EU Emissions Trading Scheme, which allocate permits for free to carbon and trade intensive industries. We estimate that this practice will result in overcompensation in the order of €6.7 billion every year. Efficient allocation would reduce the aggregate risk of job loss by two thirds without increasing aggregate compensation.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1150.

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Date of creation: Jun 2012
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Handle: RePEc:cep:cepdps:dp1150

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

Related research

Keywords: Industry compensation; industrial relocation; emissions trading; permit allocation; EU ETS; firm data;

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References

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Citations

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Cited by:
  1. Stephen Lecourt & Clément Pallière & Oliver J. Sartor, 2013. "The impact of emissions-performance benchmarking on free allocations in EU ETS Phase 3," Working Papers hal-00809096, HAL.
  2. Sebastian Petrick & Ulrich J. Wagner, 2014. "The Impact of Carbon Trading on Industry: Evidence from German Manufacturing Firms," Kiel Working Papers 1912, Kiel Institute for the World Economy.
  3. Rosendahl, Knut Einar & Strand, Jon, 2012. "Emissions trading with offset markets and free quota allocations," Policy Research Working Paper Series 6281, The World Bank.
  4. Guy Meunier & Jean-Pierre Ponssard & Philippe Quirion, 2012. "Carbon Leakage and Capacity-Based Allocations. Is the EU right?," CIRED Working Papers hal-00672907, HAL.
  5. Frédéric Branger & Oskar Lecuyer & Philippe Quirion, 2013. "The European Union Emissions Trading System : should we throw the flagship out with the bathwater ?," Working Papers hal-00866408, HAL.
  6. ZhongXiang Zhang, 2012. "Competitiveness and Leakage Concerns and Border Carbon Adjustments," CCEP Working Papers 1208, Centre for Climate Economics & Policy, Crawford School of Public Policy, The Australian National University.
  7. Frédéric Branger & Oskar Lecuyer & Philippe Quirion, 2013. "The European Union Emissions Trading System : should we throw the flagship out with the bathwater ?," CIRED Working Papers hal-00866408, HAL.
  8. Stephen Lecourt & Clement Palliere & Oliver Sartor, 2013. "Free allocations in EU ETS Phase 3: The impact of emissions-performance benchmarking for carbonintensive industry," Working Papers 1302, Chaire Economie du Climat.

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