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Higher Price, Lower Costs? Minimum Prices in the EU Emissions Trading Scheme

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  • Jan Abrell
  • Sebastian Rausch
  • Hidemichi Yonezawa

Abstract

In this paper, we examine the introduction of a price floor in an emissions trading system (ETS) when some emissions are regulated outside the ETS. We theoretically characterize the conditions under which a price floor enhances welfare. Using a numerical simulation model of the European Union (EU), we find that moderate minimum prices in the EU ETS can reduce the costs of EU climate policy by up to 30 percent. We also find that, because of tax‐interaction effects, the optimal minimum price in the EU ETS should be about four times higher than the average marginal abatement cost in non‐ETS sectors.

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  • Jan Abrell & Sebastian Rausch & Hidemichi Yonezawa, 2019. "Higher Price, Lower Costs? Minimum Prices in the EU Emissions Trading Scheme," Scandinavian Journal of Economics, Wiley Blackwell, vol. 121(2), pages 446-481, April.
    • Handle: RePEc:bla:scandj:v:121:y:2019:i:2:p:446-481
    DOI: 10.1111/sjoe.12279
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    Cited by:

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    2. Latorre, Maria C. & Yonezawa, Hidemichi & Olekseyuk, Zoryana, 2022. "The EU-Mercosur agreement: An in-depth analysis of CO2 emissions and labor market results," Conference papers 333488, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. Marcin Rabe & Dalia Streimikiene & Yuriy Bilan, 2019. "EU Carbon Emissions Market Development and Its Impact on Penetration of Renewables in the Power Sector," Energies, MDPI, vol. 12(15), pages 1-20, August.

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    More about this item

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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