CO2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: Grandfathering vs. output-based allocation
AbstractA recurrent concern raised by the European GHG Emissions Trading System (ETS) is the fear of EU industry competitiveness loss: a loss in domestic production and a loss in profits. This paper analyses how production and profits in the European cement industry may depend upon allocation approaches. We analyse two contrasting allocation methods of free allowances. Under "grandfathering", the number of allowances a firm gets is independent of its current behaviour. Under "output-based allocation", it is proportional to its current production level. Whereas almost all the quantitative assessments of the EU ETS assume grandfathering, the real allocation methods used by Member States, notably because of the updating every five years and of the special provision for new plants and plant closings, stand somewhere between these two polar cases. We study the impacts of these two polar allocation methods by linking a detailed trade model of homogeneous products with high transportation costs (GEO) with a bottom-up model of the cement industry (CEMSIM). The two allocation approaches have very different impacts on competitiveness and emissions abatements. Grandfathering 50% of past emissions to cement producers is enough to maintain aggregate profitability (EBITDA) at its business-as-usual level, but with significant production losses and CO2 leakage. For an output-based allocation over 75% of historic unitary (tCO2/tonne-cement) emissions, impact on production levels and EBITDA is insignificant, abatement in the EU is much lower but there is almost no leakage. Policy needs to recognise to what extent different allocation approaches may change the impacts of emissions trading, and adopt approaches accordingly.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by HAL in its series Post-Print with number halshs-00639327.
Date of creation: 2006
Date of revision:
Publication status: Published, Climate Policy, 2006, 6, 1, 93-113
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00639327
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/
Grandfathering; Output-based allocation; competitiveness; leakage;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gernot Klepper & Sonja Peterson, 2006.
"Emissions Trading, CDM, JI, and More: The Climate Strategy of the EU,"
The Energy Journal,
International Association for Energy Economics, vol. 0(Number 2), pages 1-26.
- Klepper, Gernot & Peterson, Sonja, 2006. "Emissions trading, CDM, JI, and more : the climate strategy of the EU," Open Access Publications from Kiel Institute for the World Economy 3814, Kiel Institute for the World Economy (IfW).
- Gernot Klepper & Sonja Peterson, 2005. "Emissions Trading, CDM, JI, and More – The Climate Strategy of the EU," Working Papers 2005.55, Fondazione Eni Enrico Mattei.
- Gernot Klepper & Sonja Peterson, 2004.
"The EU Emissions Trading Scheme: Allowance Prices, Trade Flows, Competitiveness Effects,"
Kiel Working Papers
1195, Kiel Institute for the World Economy.
- Gernot Klepper & Sonja Peterson, 2004. "The EU Emissions Trading Scheme. Allowance Prices, Trade Flows, Competitiveness Effects," Working Papers 2004.49, Fondazione Eni Enrico Mattei.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).
If references are entirely missing, you can add them using this form.