Output-Based Emissions Allowances and the Equity-Efficiency Trade-off
AbstractEmissions trading with output-based allocation (OBA) of emissions allowances is gaining popularity as a means to address sectoral equity issues related to the use of market-based instruments in pollution control. Using a dynamic general equilibrium framework, this paper assesses the potential equity-efficiency trade-off between OBA and alternative emissions trading systems, with special attention to the heterogeneity among energy-intensive industries. Because abatement is achieved at a higher marginal cost with OBA, it is less efficient than emissions trading systems in which permit revenues are used to reduce payroll taxes. Nonetheless, the implicit output subsidy in OBA improves the distributional outcome of the abatement policy to the benefit of energy-intensive industries as a whole. The simulation results also suggest that energy-intensive industries that do not produce energy would be the main beneficiaries of OBA. In the new carbonconstrained environment, energy intensive industries that produce energy could not benefit significantly from OBA.
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Bibliographic InfoPaper provided by University of Ottawa, Department of Economics in its series Working Papers with number 0505E.
Length: 31 pages
Date of creation: 2005
Date of revision:
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Emissions allowance; Output-based allocation; Equity-efficiency trade-off; Dynamic general equilibrium;
Find related papers by JEL classification:
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
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