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UK’s climate change levy and emissions trading scheme: implications for businesses’ productivity and economic efficiency

In: Emissions Trading and Business

Author

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  • Adarsh Varma

    (The University of Hull Business School)

Abstract

This paper sets out a theoretical model to analyse the effect of UK’s climate change levy (CCL) and the emissions trading scheme (ETS) on the productivity and overall economic efficiency of businesses. A microeconomic analysis at plant level enables us to understand the implications of compliance cost for the overall cost structure of the plant. Some of the dynamics of an economic instrument can be lost at an aggregate level. We will use a stochastic translog frontier cost function with a cost inefficiency component to analyse whether the two instruments affect the overall economic efficiency of the firm. The model allows for factor substitution to take into account changes in relative factor prices, which can reduce the perceived adverse effects of the two instruments on productivity and efficiency of plants. The paper also briefly outlines the implications for the cost function due to some of the key developments since their inception in 2001 (CCL) and 2002 (ETS).

Suggested Citation

  • Adarsh Varma, 2006. "UK’s climate change levy and emissions trading scheme: implications for businesses’ productivity and economic efficiency," Springer Books, in: Ralf Antes & Bernd Hansjürgens & Peter Letmathe (ed.), Emissions Trading and Business, pages 313-326, Springer.
    • Handle: RePEc:spr:sprchp:978-3-7908-1748-5_21
    DOI: 10.1007/3-7908-1748-1_21
    as

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