IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Industry Compensation Under Relocation Risk: A Firm-Level Analysis of the EU Emissions Trading Scheme

  • Ralf Martin
  • Mirabelle Muûls
  • Ulrich J. Wagner
  • Laure B. de Preux

When industry compensation is offered to prevent relocation of regulated firms, efficiency requires that payments be distributed across firms so as to equalize marginal relocation probabilities, weighted by the damage caused by relocation. We formalize this fundamental economic logic and apply it to analyze industry compensation rules proposed under the EU Emissions Trading Scheme, which allocate permits for free to carbon and trade intensive industries. We estimate that this practice will result in overcompensation in the order of €6.7 billion every year. Efficient allocation would reduce the aggregate risk of job loss by two thirds without increasing aggregate compensation.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://cep.lse.ac.uk/pubs/download/dp1150.pdf
Download Restriction: no

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp1150.

as
in new window

Length:
Date of creation: Jun 2012
Date of revision:
Handle: RePEc:cep:cepdps:dp1150
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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.:

as in new window
  1. Hahn, Robert W, 1984. "Market Power and Transferable Property Rights," The Quarterly Journal of Economics, MIT Press, vol. 99(4), pages 753-65, November.
  2. Blundell, R. & Bond, S., 1995. "Initial Conditions and Moment Restrictions in Dynamic Panel Data Models," Economics Papers 104, Economics Group, Nuffield College, University of Oxford.
  3. Ulrich J. Wagner & Christopher Timmins, 2010. "Agglomeration Effects in Foreign Direct Investment and the Pollution Haven Hypothesis," Working Papers 10-05, Duke University, Department of Economics.
  4. Nick Bloom & Christos Genakos & Ralf Martin & Raffaella Sadun, 2010. "In brief: Modern Management: Good for the environment or just hot air?," CentrePiece - The Magazine for Economic Performance 303, Centre for Economic Performance, LSE.
  5. Philippe Quirion & Damien Demailly, 2006. "CO2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: grandfathering versus output-based allocation," Post-Print hal-00119449, HAL.
  6. Nicholas Bloom & Christos Genakos & Ralf Martin & Raffaella Sadun, 2008. "Modern Management: Good for the Environment of Just Hot Air?," Discussion Papers 08-009, Stanford Institute for Economic Policy Research.
  7. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
  8. Monjon, Stéphanie & Quirion, Philippe, 2011. "Addressing leakage in the EU ETS: Border adjustment or output-based allocation?," Ecological Economics, Elsevier, vol. 70(11), pages 1957-1971, September.
  9. Guy Meunier & Jean-Pierre Ponssard & Philippe Quirion, 2012. "Carbon Leakage and Capacity-Based Allocations. Is the EU right?," CESifo Working Paper Series 4029, CESifo Group Munich.
  10. Nick Bloom & Raffaella Sadun & John Van Reenen, 2009. "Does product market competition lead firms to decentralize?," LSE Research Online Documents on Economics 51581, London School of Economics and Political Science, LSE Library.
  11. Jan Abrell & Anta Ndoye Faye & Georg Zachmann, 2011. "Assessing the impact of the EU ETS using firm level data," Working Papers of BETA 2011-15, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  12. Bovenberg, A. Lans & Goulder, Lawrence H. & Jacobsen, Mark R., 2008. "Costs of alternative environmental policy instruments in the presence of industry compensation requirements," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1236-1253, June.
  13. Nick Bloom & John Van Reenen, 2006. "Measuring and Explaining Management Practices Across Firms and Countries," NBER Working Papers 12216, National Bureau of Economic Research, Inc.
  14. De Perthuis, Christian & Convery, Frank J. & Ellerman, Denny, 2010. "Pricing carbon : the European Union Emissions Trading Scheme," Economics Papers from University Paris Dauphine 123456789/10174, Paris Dauphine University.
  15. Nick Bloom & Raffaella Sadun & John Van Reenen, 2009. "The organization of firms across countries," LSE Research Online Documents on Economics 25481, London School of Economics and Political Science, LSE Library.
  16. Rafael Calel & Antoine Dechezlepr�tre, 2012. "Environmental policy and directed technological change: evidence from the European carbon maket," GRI Working Papers 75, Grantham Research Institute on Climate Change and the Environment.
  17. Bushnell, James & Mansur, Erin T. & Chong, Howard G., 2010. "Profiting from Regulation: An Event Study of the EU Carbon Market," Staff General Research Papers 32737, Iowa State University, Department of Economics.
  18. Ralf Martin & Mirabelle Muuls & Laure B. de Preux & Ulrich J. Wagner, 2014. "Industry compensation under relocation risk: a firm-level analysis of the EU emissions trading scheme," LSE Research Online Documents on Economics 59312, London School of Economics and Political Science, LSE Library.
  19. Rema Hanna, 2010. "US Environmental Regulation and FDI: Evidence from a Panel of US-Based Multinational Firms," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 158-89, July.
  20. Martin, Ralf & Muûls, Mirabelle & de Preux, Laure B. & Wagner, Ulrich J., 2012. "Anatomy of a paradox: Management practices, organizational structure and energy efficiency," Journal of Environmental Economics and Management, Elsevier, vol. 63(2), pages 208-223.
  21. A. Lans Bovenberg & Lawrence H. Goulder & Derek J. Gurney, 2005. "Efficiency Costs of Meeting Industry-Distributional Constraints Under Environmental Permits and Taxes," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 950-970, Winter.
  22. Carolyn Fischer & Alan K. Fox, 2007. "Output-Based Allocation of Emissions Permits for Mitigating Tax and Trade Interactions," Land Economics, University of Wisconsin Press, vol. 83(4), pages 575-599.
  23. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December.
  24. Chan, Hei Sing & Li, Shanjun & Zhang, Fan, 2013. "Firm competitiveness and the European union emissions trading scheme," Policy Research Working Paper Series 6662, The World Bank.
  25. Demailly, Damien & Quirion, Philippe, 2008. "European Emission Trading Scheme and competitiveness: A case study on the iron and steel industry," Energy Economics, Elsevier, vol. 30(4), pages 2009-2027, July.
  26. Wagner, Ulrich & Petrick, Sebastian, 2014. "The Impact of Carbon Trading on Industry: Evidence from German Manufacturing Firms," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100472, Verein für Socialpolitik / German Economic Association.
  27. Mar Reguant & A. Denny Ellerman, 2008. "Grandfathering and the endowment effect - An Assessment in the context of the Spanish National Allocation Plan," Working Papers 0818, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research.
  28. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
  29. Ingmar Juergens & Jes�s Barreiro-Hurlé & Alexander Vasa, 2013. "Identifying carbon leakage sectors in the EU ETS and implications of results," Climate Policy, Taylor & Francis Journals, vol. 13(1), pages 89-109, January.
  30. Christina Hood, 2010. "Reviewing Existing and Proposed Emissions Trading Systems," IEA Energy Papers 2010/13, OECD Publishing.
  31. Sendhil Mullainathan & Marianne Bertrand, 2001. "Do People Mean What They Say? Implications for Subjective Survey Data," American Economic Review, American Economic Association, vol. 91(2), pages 67-72, May.
  32. James B. Bushnell & Yihsu Chen, 2009. "Regulation, Allocation, and Leakage in Cap-and-Trade Markets for CO2," NBER Working Papers 15495, National Bureau of Economic Research, Inc.
  33. Martin, Ralf & de Preux, Laure B. & Wagner, Ulrich J., 2014. "The impact of a carbon tax on manufacturing: Evidence from microdata," Journal of Public Economics, Elsevier, vol. 117(C), pages 1-14.
  34. Damien Demailly & Philippe Quirion, 2006. "CO2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: Grandfathering vs. output-based allocation," Post-Print halshs-00639327, HAL.
  35. James B. Bushnell & Howard Chong & Erin T. Mansur, 2013. "Profiting from Regulation: Evidence from the European Carbon Market," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 78-106, November.
  36. Bushnell, James & Chen, Yihsu, 2012. "Allocation and leakage in regional cap-and-trade markets for CO2," Resource and Energy Economics, Elsevier, vol. 34(4), pages 647-668.
  37. Stephen Lecourt & Clément Pallière & Oliver Sartor, 2013. "The impact of emissions-performance benchmarking on free allocations in EU ETS Phase 3," RSCAS Working Papers 2013/17, European University Institute.
  38. Commins, Nicola & Lyons, Seán & Schiffbauer, Marc & Tol, Richard S. J., 2009. "Climate Policy and Corporate Behaviour," Papers WP329, Economic and Social Research Institute (ESRI).
  39. Anger, Niels & Oberndorfer, Ulrich, 2008. "Firm performance and employment in the EU emissions trading scheme: An empirical assessment for Germany," Energy Policy, Elsevier, vol. 36(1), pages 12-22, January.
  40. William Walker, 2012. "The Transitional Costs of Sectoral Reallocation: Evidence from the Clean Air Act and the Workforce," Working Papers 12-02, Center for Economic Studies, U.S. Census Bureau.
  41. Barry Anderson & Jörg Leib & Ralf Martin & Marty McGuigan & Mirabelle Muuls & Laure de Preux & Ulrich J. Wagner, 2011. "Climate change policy and business in Europe: evidence from interviewing managers," LSE Research Online Documents on Economics 47493, London School of Economics and Political Science, LSE Library.
  42. Martin, Ralf & Muûls, Mirabelle & de Preux, Laure B. & Wagner, Ulrich J., 2014. "On the empirical content of carbon leakage criteria in the EU Emissions Trading Scheme," Ecological Economics, Elsevier, vol. 105(C), pages 78-88.
  43. Ralf Martin & Laure B. de Preux & Ulrich J. Wagner, 2011. "The Impacts of the Climate Change Levy on Manufacturing: Evidence from Microdata," NBER Working Papers 17446, National Bureau of Economic Research, Inc.
  44. Sergey V. Paltsev, 2001. "The Kyoto Protocol: Regional and Sectoral Contributions to the Carbon Leakage," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 53-80.
  45. Sato, S. & Grubb, M. & Cust, J. & Chan, K. & Korppoo, A. & Ceppi, P., 2007. "Differentiation and dynamics of competitiveness impacts from the EU ETS," Cambridge Working Papers in Economics 0712, Faculty of Economics, University of Cambridge.
  46. Nick Bloom & John Van Reenen, 2010. "New approaches to surveying organizations," LSE Research Online Documents on Economics 28612, London School of Economics and Political Science, LSE Library.
  47. Jerome Adda & Russell W. Cooper, 2003. "Dynamic Economics: Quantitative Methods and Applications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012014, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cep:cepdps:dp1150. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.