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Carbon Leakage and Capacity-Based Allocations. Is the EU right?

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Author Info

  • Guy Meunier

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X, ALISS - Alimentation et sciences sociales - Institut national de la recherche agronomique (INRA) : UR1303)

  • Jean-Pierre Ponssard

    (Department of Economics, Ecole Polytechnique - CNRS : UMR7176 - Polytechnique - X)

  • Philippe Quirion

    ()
    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - Centre de coopération internationale en recherche agronomique pour le développement [CIRAD] : UMR56 - CNRS : UMR8568 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - AgroParisTech)

Abstract

Two main approaches have been implemented in regional CO2 markets to address competitiveness and carbon leakage: output based allocation (Australia, California, New Zealand) and capacity based allocation (EU). This paper characterizes the best policy, given that auctioning with border adjustment is excluded. A simple model is used in which the regional demand is subject to business cycles, and the import pressure depends on the demand level and capacity constraints. A combination of output and capacity based allocation is proved to be the optimal second best policy. The EU scheme for 2013-2020 is discussed, using cement as a case study.

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Bibliographic Info

Paper provided by HAL in its series CIRED Working Papers with number hal-00672907.

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Date of creation: 22 Feb 2012
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Handle: RePEc:hal:ciredw:hal-00672907

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