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Technological Progress and Carbon Price Formation: an Analysis of EU-ETS Plants

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  • Anouk Faure
  • Marc Baudry

Abstract

This study investigates the nature of technological progress in six manufacturing industries covered under the EU-ETS, plus the power sector, and its effect on carbon price formation using marginal abatement cost curves. We adopt a technological frontier framework, which we calibrate to input and output data at the plant level from 2013 to 2017, with a directional distance function approach. Our results reveal that most of the time, technological progress resulted in inflating baseline emissions, despite decreasing the carbon intensity of production. In our sample industries, technological progress therefore leads to increase abatement efforts, raising the equilibrium price of carbon.

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  • Anouk Faure & Marc Baudry, 2021. "Technological Progress and Carbon Price Formation: an Analysis of EU-ETS Plants," EconomiX Working Papers 2021-18, University of Paris Nanterre, EconomiX.
    • Handle: RePEc:drm:wpaper:2021-18
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    Cited by:

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    2. Aliénor Cameron & Marc Baudry, 2022. "The case for a Carbon Border Adjustment: Where do economists stand?," Policy Papers 2022.01, FAERE - French Association of Environmental and Resource Economists.

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    More about this item

    Keywords

    Directed technological change; frontier analysis; EU-ETS;
    All these keywords.

    JEL classification:

    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L6 - Industrial Organization - - Industry Studies: Manufacturing

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