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Carbon cost pass-through in industrial sectors

Author

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  • Karsten Neuhoff

    (DIW Berlin)

  • Robert A. Ritz

    (EPRG, University of Cambridge)

Abstract

To achieve the ambitions of the 2015 Paris Climate Agreement, the decarbonization of energy-intensive industrial sectors is becoming increasingly important. This paper focuses on the economics of carbon cost pass-through: the change in product prices induced by carbon pricing. We provide a theoretical framework to understand pass-through at the sectoral level and a constructive review of the empirical evidence from the EU ETS and other jurisdictions. Our analysis is structured around three key drivers: international trade, market structure, and free allowance allocation. We provide a synthesis of our key findings for policymakers and identify gaps in the literature for future research.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Karsten Neuhoff & Robert A. Ritz, 2019. "Carbon cost pass-through in industrial sectors," Working Papers EPRG1935, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
  • Handle: RePEc:enp:wpaper:eprg1935
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    References listed on IDEAS

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    Cited by:

    1. Stede, Jan & Pauliuk, Stefan & Hardadi, Gilang & Neuhoff, Karsten, 2021. "Carbon pricing of basic materials: Incentives and risks for the value chain and consumers," Ecological Economics, Elsevier, vol. 189(C).
    2. Ferrara, Antonella Rita & Giua, Ludovica, 2022. "Indirect cost compensation under the EU ETS: A firm-level analysis," Energy Policy, Elsevier, vol. 165(C).
    3. Yang, Changjiang & Yan, Xiaoxuan, 2023. "Impact of carbon tariffs on price competitiveness in the era of global value chain," Applied Energy, Elsevier, vol. 336(C).
    4. Xi Sun, 2023. "The Role of Carbon Pricing in Promoting Material Recycling: A Model of Multi-Market Interactions," Discussion Papers of DIW Berlin 2034, DIW Berlin, German Institute for Economic Research.
    5. Stuart Evans & Michael A. Mehling & Robert A. Ritz & Paul Sammon, 2021. "Border carbon adjustments and industrial competitiveness in a European Green Deal," Climate Policy, Taylor & Francis Journals, vol. 21(3), pages 307-317, March.
    6. Alex Borodin & Vladislav Zaitsev & Zahid F. Mamedov & Galina Panaedova & Andrey Kulikov, 2022. "Mechanisms for Tax Regulation of CO 2 -Equivalent Emissions," Energies, MDPI, vol. 15(19), pages 1-15, September.
    7. Olga Chiappinelli & Timo Gerres & Karsten Neuhoff & Frederik Lettow & Heleen de Coninck & Balázs Felsmann & Eugénie Joltreau & Gauri Khandekar & Pedro Linares & Jörn Richstein & Aleksander Śniegocki &, 2021. "A green COVID-19 recovery of the EU basic materials sector: identifying potentials, barriers and policy solutions," Climate Policy, Taylor & Francis Journals, vol. 21(10), pages 1328-1346, November.
    8. Sato, Misato & Rafaty, Ryan & Calel, Raphael & Grubb, Michael, 2022. "Allocation, allocation, allocation! The political economy of the development of the European Union Emissions Trading System," LSE Research Online Documents on Economics 115431, London School of Economics and Political Science, LSE Library.

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    More about this item

    Keywords

    Carbon pricing; cost pass-through; free allocation; full carbon price internalization; international trade; market structure;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L70 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - General
    • 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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