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The Role of Abatement Technologies for Allocating Free Allowances

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  • Christin, Clémence
  • Nicolaï, Jean-Philippe
  • Pouyet, Jerome

Abstract

The issue of how to allocate pollution permits is critical for the political sustainability of any cap-and-trade system. Under the objective of offsetting firms' losses resulting from the environmental regulation, we argue that the criteria for allocating free allowances must account for the type of abatement technology: industries that use process integrated technologies should receive some free allowances, whereas those using end-of-pipe abatement should not. In the long run, we analyze the interaction between the environmental policy and the evolution of the market structure. In particular, a reserve of pollution permits for new entrants may be justified when the industry uses a process integrated abatement technology.

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Bibliographic Info

Paper provided by CEPREMAP in its series CEPREMAP Working Papers (Docweb) with number 1109.

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Length: 35 pages
Date of creation: Sep 2011
Date of revision:
Handle: RePEc:cpm:docweb:1109

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Keywords: Cap-and-trade system; profit-neutral allocations; abatement technologies;

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References

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  1. Verbruggen, Aviel, 2008. "Windfalls and other profits," Energy Policy, Elsevier, Elsevier, vol. 36(9), pages 3249-3251, September.
  2. Demailly, Damien & Quirion, Philippe, 2008. "European Emission Trading Scheme and competitiveness: A case study on the iron and steel industry," Energy Economics, Elsevier, Elsevier, vol. 30(4), pages 2009-2027, July.
  3. Sijm, J. & Neuhoff, K. & Chen, Y., 2006. "CO2 cost pass through and windfall profits in the power sector," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0639, Faculty of Economics, University of Cambridge.
  4. Olivier Godard, 2005. "Evaluation approfondie du plan français d'affectation de quotas de CO2 aux entreprises," Working Papers hal-00243005, HAL.
  5. Frondel, Manuel & Horbach, Jens & Rennings, Klaus, 2004. "End-of-Pipe or Cleaner Production? An Empirical Comparison of Environmental Innovation Decisions Across OECD Countries," ZEW Discussion Papers 04-82, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Montero, Juan-Pablo, 2002. "Permits, Standards, and Technology Innovation," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 23-44, July.
  7. Newell, Richard & Anderson, Soren, 2003. "Prospects for Carbon Capture and Storage Technologies," Discussion Papers, Resources For the Future dp-02-68, Resources For the Future.
  8. A. Denny Ellerman, 2008. "New Entrant and Closure Provisions: How do they Distort?," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Special I), pages 63-76.
  9. Hepburn, C. & Grubb, M. & Neuhoff, K. & Matthes , F. & Tse, M., 2006. "Auctioning of EU ETS Phase II allowances: how and why?," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0644, Faculty of Economics, University of Cambridge.
  10. Cameron Hepburn & John Quah & Robert Ritz, 2006. "Emissions Trading and Profit-Neutral Grandfathering," Economics Series Working Papers 295, University of Oxford, Department of Economics.
  11. Grubb, M. & Neuhoff, K., 2006. "Allocation and competitiveness in the EU emissions trading scheme: policy overview," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 0645, Faculty of Economics, University of Cambridge.
  12. Requate, Till, 2005. "Dynamic incentives by environmental policy instruments--a survey," Ecological Economics, Elsevier, Elsevier, vol. 54(2-3), pages 175-195, August.
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Cited by:
  1. Stühmeier Torben & Wenzel Tobias, 2012. "Regulating Advertising in the Presence of Public Service Broadcasting," Review of Network Economics, De Gruyter, De Gruyter, vol. 11(2), pages 1-23, June.
  2. Gu, Yiquan & Wenzel, Tobias, 2011. "Transparency, entry, and productivity," DICE Discussion Papers 39, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  3. Haucap, Justus & Herr, Annika & Frank, Björn, 2011. "In vino veritas: Theory and evidence on social drinking," DICE Discussion Papers 37, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  4. Christin, Clémence, 2011. "Entry deterrence through cooperative R&D over-investment," DICE Discussion Papers 38, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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