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Output-Based Allocation and Output-Based Rebates: A survey

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  • Philippe Quirion

    (CNRS, CIRED)

Abstract

Output-based refunding consists in distributing the value of taxes on pollution, or that of tradable emission allowances, to operators of emitting facilities, in proportion of their current production level. It is called output-based rebating in the case of taxes and output-based allocation in the case of tradable emission allowances. This practice is widespread, especially in climate policies, and has important economic consequences. We analyse these consequences, first in a deterministic setting and then accounting for uncertainty. While output-based refunding is detrimental to welfare in a deterministic, closed economy without prior distortions, it also provides some benefits. In particular, it is an efficient way to limit carbon leakage. Then, we present the implementation of output-based allocation in the European Union, California, China, New-Zealand and Alberta, and discuss whether it should be maintained or phased out in the coming decades.

Suggested Citation

  • Philippe Quirion, 2021. "Output-Based Allocation and Output-Based Rebates: A survey," Working Papers 2021.03, FAERE - French Association of Environmental and Resource Economists.
    • Handle: RePEc:fae:wpaper:2021.03
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    References listed on IDEAS

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    Cited by:

    1. Ambec, Stefan, 2022. "The European Union’s Carbon Border Adjustment Mechanism: Challenges and Perspectives," TSE Working Papers 22-1365, Toulouse School of Economics (TSE).

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    More about this item

    Keywords

    output-based allocation; leakage; output-based rebate; output-based refunding; Emission trading;
    All these keywords.

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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