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A carbon horse race: Abatement subsidies vs. permit trading in Switzerland

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Listed:
  • Hintermann, Beat

    (University of Basel)

  • Zarkovic, Maja

    (University of Basel)

Abstract

Swiss climate policy consists of three regulatory instruments for greenhouse gas emissions reduction: A CO 2 levy, the Swiss Emissions Trading System (CH EHS), and an additional nonEHS" program for medium-sized plants that consists of command-and-control elements plus a sizeable abatement subsidy. Our paper informs about this tripartite climate policy, which is unique in the international context. Second, we estimate the dierential impact of the CH EHS and the nonEHS program on plants' emissions. Our empirical strategy exploits a policy change in 2013 that instituted a mandatory emissions trading system for a subset of previously regulated rms. We nd that the nonEHS outperforms the CH EHS for a minority of plants, but that on average, the two programs result in similar abatement eorts despite very dierent nancial incentives. Firms that previously engaged in abatement eorts continue to do so even after the nancial incentives were reduced by an order of magnitude. Our results suggest the presence of preferences for abatement per se, above and beyond nancial incentives. They further imply that expanding the nonEHS system at the expense of the CO 2 levy may be associated with signifcant costs but no additional emission reductions.

Suggested Citation

  • Hintermann, Beat & Zarkovic, Maja, 2020. "A carbon horse race: Abatement subsidies vs. permit trading in Switzerland," Working papers 2020/05, Faculty of Business and Economics - University of Basel.
    • Handle: RePEc:bsl:wpaper:2020/05
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    References listed on IDEAS

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    1. Beat Hintermann & Marc Gronwald, 2019. "Linking with Uncertainty: The Relationship Between EU ETS Pollution Permits and Kyoto Offsets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(2), pages 761-784, October.
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    8. Beat Hintermann & Maja Zarkovic, 2020. "Carbon Pricing in Switzerland: A Fusion of Taxes, Command-and-Control, and Permit Markets," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 18(01), pages 35-41, April.
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    1. Beat Hintermann & Maja Zarkovic, 2020. "Carbon Pricing in Switzerland: A Fusion of Taxes, Command-and-Control, and Permit Markets," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 18(01), pages 35-41, April.

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    More about this item

    Keywords

    Climate policy; emissions tax; carbon tax; emissions trading; subsidies; command-and-control; Switzerland;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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