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Pervasive EUAs free allocation: the case of the steel industry

Author

Listed:
  • Maria-Eugenia Sanin

    (University Paris-Saclay, EPEE ; Inter-American Development Bank)

  • Sylvain Sourisseau

    (University Paris-Saclay, EPEE ; ADEME - French Agency of Environment and Energy Management)

Abstract

Sectors subject to international competition still benefit from free allocation of EU Allowances in Phase III of the EU ETS market. Herein we show that those free EUAs benefit the less efficient firms in terms of emissions and, by doing so, they create overallocation profits for the market leaders. This is particularly striking in the steel industry which is very concentrated with one firm producing approximately 34 per cent of the market alone. To show this, we perform a frontier analysis and show that most free permits are allocated to most polluting firms. Hence, we highlight that by protecting the EU steelmakers from international competition, free EUAs lead to a trade-off between the EU climate policy and the competition policy.

Suggested Citation

  • Maria-Eugenia Sanin & Sylvain Sourisseau, 2019. "Pervasive EUAs free allocation: the case of the steel industry," Documents de recherche 19-06, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
    • Handle: RePEc:eve:wpaper:19-06
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    More about this item

    Keywords

    EU ETS; steelmaking; overallocation profits; competition; CO2 efficiency; free allocation;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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