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Higher Price, Lower Costs? Minimum Prices in the EU Emissions Trading Scheme

Author

Listed:
  • Jan Abrell

    (ETH Zürich, Switzerland)

  • Sebastian Rausch

    (ETH Zurich, Switzerland)

  • Hidemichi Yonezawa

    (ETH Zurich, Switzerland)

Abstract

This paper examines the efficiency and distributional impacts of introducing a price floor in an emissions trading system (ETS) when environmental regulation is partitioned. We theoretically characterize the conditions under which a price floor enhances welfare. Using a multi-country multi-sector numerical general equilibrium model of the European carbon market, we find that moderate minimum price levels in the EU ETS can reduce the costs of EU climate policy by up to thirty percent and yield outcomes close to uniform carbon pricing. Moreover, most of the EU Member States would gain. Our results are robust with respect to parametric uncertainty in production and consumption technologies.

Suggested Citation

  • Jan Abrell & Sebastian Rausch & Hidemichi Yonezawa, 2016. "Higher Price, Lower Costs? Minimum Prices in the EU Emissions Trading Scheme," CER-ETH Economics working paper series 16/243, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:16-243
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    References listed on IDEAS

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    Cited by:

    1. Latorre, Maria C. & Yonezawa, Hidemichi & Olekseyuk, Zoryana, 2022. "The EU-Mercosur agreement: An in-depth analysis of CO2 emissions and labor market results," Conference papers 333488, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Osorio, Sebastian & Pietzcker, Robert Carl & Pahle, Michael & Edenhofer, Ottmar, 2018. "How to deal with the risks of phasing out coal in Germany through national carbon pricing," EconStor Preprints 190771, ZBW - Leibniz Information Centre for Economics.
    3. Marcin Rabe & Dalia Streimikiene & Yuriy Bilan, 2019. "EU Carbon Emissions Market Development and Its Impact on Penetration of Renewables in the Power Sector," Energies, MDPI, vol. 12(15), pages 1-20, August.

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    More about this item

    Keywords

    Emissions Trading; Price Floors; EU ETS; Partitioned Environmental Regulation; General Equilibrium;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models

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