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Efficiency Losses from Overlapping Economic Instruments in European Carbon Emissions Regulation

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Author Info
Böhringer, Christoph
Koschel, Henrike
Moslener, Ulf
Abstract

Energy markets and energy-intensive industries in all EU member states ? especially in Germany ? are subject to a diverse set of policies related to climate change. We analyse the potential efficiency losses from simultaneous application of emission taxes and emissions trading in qualitative and quantitative terms within a partial equilibrium framework for the EU. It turns out that those firms within the EU Emissions Trading Scheme (EU ETS) which at the same time are subject to domestic energy or carbon taxes will abate inefficiently much while other firms within the EU ETS will benefit from lower international emission permit prices. The same logic disproves the argument that additional national emission taxes will reduce inefficiencies in abatement supposed to be resulting from allowance (over-) allocation. In essence, unilateral emission taxes within the EU ETS are ecologically ineffective and subsidise net permit buyers. Thus, all firms that are subject to emissions trading and any CO2 emission taxes at the same time should be exempt from the latter. The foregone tax revenue could be generated by auctioning a small fraction of the permits instead. This would be cheaper for the emissions trading sectors as a whole and could be compatible even with the tight auctioning restrictions of the EU directive. --

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Publisher Info
Paper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 06-18.

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Date of creation: 2006
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Handle: RePEc:zbw:zewdip:4597

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Related research
Keywords: emissions trading; emission taxes; National Allocation Plans;

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Find related papers by JEL classification:
Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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References listed on IDEAS
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.:
  1. Bohringer, Christoph, 2002. "Industry-Level Emission Trading between Power Producers in the EU," Applied Economics, Taylor and Francis Journals, vol. 34(4), pages 523-33, March. [Downloadable!] (restricted)
  2. A. Bovenberg, 1999. "Green Tax Reforms and the Double Dividend: an Updated Reader's Guide," International Tax and Public Finance, Springer, vol. 6(3), pages 421-443, August. [Downloadable!] (restricted)
  3. Steven Sorrell, 2003. "Carbon Trading in the Policy Mix," Oxford Review of Economic Policy, Oxford University Press, vol. 19(3), pages 420-437.
  4. Christoph Böhringer & Andreas Lange, 2005. "Mission Impossible !? On the Harmonization of National Allocation Plans under the EU Emissions Trading Directive," Journal of Regulatory Economics, Springer, vol. 27(1), pages 81-94, September. [Downloadable!] (restricted)
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  5. Lawrence Goulder, 1995. "Environmental taxation and the double dividend: A reader's guide," International Tax and Public Finance, Springer, vol. 2(2), pages 157-183, August. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Thomas Eichner & Rüdiger Pethig, 2007. "Efficient CO2 Emissions Control with National Emissions Taxes and International Emissions Trading," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  2. Dannenberg, Astrid & Mennel, Tim & Moslener, Ulf, 2007. "What Does Europe Pay for Clean Energy? ? Review of Macroeconomic Simulation Studies," ZEW Discussion Papers 07-019, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  3. Karl-Martin Ehrhart & Christian Hoppe & Ralf Löschel, 2008. "Abuse of EU Emissions Trading for Tacit Collusion," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 41(3), pages 347-361, November. [Downloadable!] (restricted)
  4. V. Oikonomou & C. Jepma, 2008. "A framework on interactions of climate and energy policy instruments," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 13(2), pages 131-156, February. [Downloadable!] (restricted)
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