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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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    File URL: http://www.cer.ethz.ch/content/dam/ethz/special-interest/mtec/cer-eth/cer-eth-dam/documents/working-papers/WP-16-243.pdf
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    References listed on IDEAS

    as
    1. Abrell, Jan & Rausch, Sebastian, 2017. "Combining price and quantity controls under partitioned environmental regulation," Journal of Public Economics, Elsevier, vol. 145(C), pages 226-242.
    2. Rutherford, Thomas F, 1999. "Applied General Equilibrium Modeling with MPSGE as a GAMS Subsystem: An Overview of the Modeling Framework and Syntax," Computational Economics, Springer;Society for Computational Economics, vol. 14(1-2), pages 1-46, October.
    3. Fischer, Carolyn & Preonas, Louis, 2010. "Combining Policies for Renewable Energy: Is the Whole Less Than the Sum of Its Parts?," International Review of Environmental and Resource Economics, now publishers, vol. 4(1), pages 51-92, June.
    4. Wood, Peter John & Jotzo, Frank, 2011. "Price floors for emissions trading," Energy Policy, Elsevier, vol. 39(3), pages 1746-1753, March.
    5. Harrison Fell & Richard Morgenstern, 2010. "Alternative Approaches to Cost Containment in a Cap-and-Trade System," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 47(2), pages 275-297, October.
    6. Bouwe Dijkstra & Edward Manderson & Tae-Yeoun Lee, 2011. "Extending the Sectoral Coverage of an International Emission Trading Scheme," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 50(2), pages 243-266, October.
    7. Michael Grubb & Karsten Neuhoff, 2006. "Allocation and competitiveness in the EU emissions trading scheme: policy overview," Climate Policy, Taylor & Francis Journals, vol. 6(1), pages 7-30, January.
    8. Pizer, William A., 2002. "Combining price and quantity controls to mitigate global climate change," Journal of Public Economics, Elsevier, vol. 85(3), pages 409-434, September.
    9. Bohringer, Christoph & Hoffmann, Tim & Manrique-de-Lara-Penate, Casiano, 2006. "The efficiency costs of separating carbon markets under the EU emissions trading scheme: A quantitative assessment for Germany," Energy Economics, Elsevier, vol. 28(1), pages 44-61, January.
    10. Knopf, Brigitte & Koch, Nicolas & Grosjean, Godefroy & Fuss, Sabine & Flachsland, Christian & Pahle, Michael & Jakob, Michael & Edenhofer, Ottmar, 2014. "The European Emissions Trading System (EU ETS): Ex-Post Analysis, the Market Stability Reserve and Options for a Comprehensive Reform," Climate Change and Sustainable Development 184856, Fondazione Eni Enrico Mattei (FEEM).
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    Cited by:

    1. 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.

    More about this item

    Keywords

    Emissions Trading; Price Floors; EU ETS; Partitioned Environmental Regulation; General Equilibrium;

    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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