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The Incidence of the European Union Emissions Trading System and the Role of Revenue Recycling: Empirical Evidence from Combined Industry- and Household-Level Data

  • Martin Beznoska
  • Johanna Cludius
  • Viktor Steiner
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    We calculate the expected incidence of the European Union Emissions Trading System (EU-ETS) using industry and household-level data. By combining data on direct CO2 emissions by production sector from the German Environmental Account with the German Input-Output Accounts, we calculate the CO2 intensity of each sector covered by the EU-ETS. We focus on the impact of price increases in the electricity sector, both directly in the form of higher electricity bills for consumers and indirectly through products that use electricity as an input to production. Taking into account behavioral effects derived from an estimated consumer-demand system, we provide incidence calculations on the basis of the German Income and Expenditure Survey for the year 2008 data updated to 2013. We confirm the ex-ante expected regressive effect, which is, however, both rather small in magnitude and can be offset and even more than offset by revenue recycling, in particular the reduction of social security contributions on labor income.

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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.406440.de/dp1227.pdf
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    Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1227.

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    Length: 29 p.
    Date of creation: 2012
    Date of revision:
    Handle: RePEc:diw:diwwpp:dp1227
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    1. Burtraw, Dallas & Sweeney, Richard & Walls, Margaret, 2009. "The Incidence of U.S. Climate Policy: Alternative Uses of Revenues from a Cap-and-Trade Auction," Discussion Papers dp-09-17-rev, Resources For the Future.
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