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EU-Type Carbon Emissions Trade and the Distributional Impact of Overlapping Emissions Taxes

  • Thomas Eichner
  • Rüdiger Pethig

The European Union fulfills its emissions reductions commitments by means of an emissions trading scheme covering some part of each member state’s economy and by national emissions control in the rest of their economies. The member states also levy energy/emissions taxes overlapping with the trading scheme. Restricting our focus on cost-effective policies, this paper investigates the distributive consequences of increasing the overlapping emissions tax that is uniform across countries. For quasi-linear utility functions and for a class of parametric utility and production functions emissions tax increases turn out to be exactly offset by permit price reductions. As a consequence permit-exporting [permit-importing] countries lose [gain] from an increase in the emissions tax. These results are not general, however. By means of a numerical example we show that export-import reversals and welfare reversals are possible.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-03/cesifo1_wp2579.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2579.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2579
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  1. Steven Sorrell, 2003. "Carbon Trading in the Policy Mix," Oxford Review of Economic Policy, Oxford University Press, vol. 19(3), pages 420-437.
  2. Shiell, Leslie, 2003. "Equity and efficiency in international markets for pollution permits," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 38-51, July.
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