IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-00719269.html
   My bibliography  Save this paper

CO2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: Grandfathering versus output-based allocation

Author

Listed:
  • D. Demailly

    (EHESS - École des hautes études en sciences sociales)

  • P. Quirion

    () (EHESS - École des hautes études en sciences sociales)

Abstract

A recurring concern raised by the European GHG Emissions Trading Scheme (ETS) is the fear of losses to EU industry through competition: both loss in domestic production and loss in profits. This article analyses how production and profits in the European cement industry may be affected by different approaches to the allocation of emissions allowances. We analyse two contrasting methods for the allocation of free allowances. With 'grandfathering', the number of allowances a firm gets is independent of its current behaviour. With 'output-based allocation', the number of allowances is proportional to the firm's current production level. Whereas almost all the quantitative assessments of the EU ETS assume grandfathering, the real allocation methods used by Member States, notably because of the updating every 5 years and of the special provisions for new plants and plant closings, stand somewhere between these two polar extremes. We study the impacts of these two contrasting allocation methods by linking a detailed trade model of homogeneous products with high transportation costs (GEO) with a bottom-up model of the cement industry (CEMSIM). The two allocation approaches have very different impacts on competitiveness and emissions abatements. Grandfathering 50% of past emissions to cement producers is enough to maintain aggregate profitability (EBITDA) at its business-as-usual level, but with significant production losses and CO2 leakage. For an output-based allocation over 75% of historic unitary (tCO2/tonnecement) emissions, the impact on production levels and EBITDA is insignificant, abatement in the EU is much lower, but there is almost no leakage. Policy makers need to recognize to what extent different allocation approaches may change the impacts of emissions trading, and adopt approaches accordingly. © 2006 Earthscan.

Suggested Citation

  • D. Demailly & P. Quirion, 2006. "CO2 abatement, competitiveness and leakage in the European cement industry under the EU ETS: Grandfathering versus output-based allocation," Post-Print hal-00719269, HAL.
  • Handle: RePEc:hal:journl:hal-00719269 Note: View the original document on HAL open archive server: https://hal-enpc.archives-ouvertes.fr/hal-00719269
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hallegatte, Stephane & Hourcade, Jean-Charles & Dumas, Patrice, 2007. "Why economic dynamics matter in assessing climate change damages: Illustration on extreme events," Ecological Economics, Elsevier, vol. 62(2), pages 330-340, April.
    2. D. W. Jorgenson & Z. Griliches, 1967. "The Explanation of Productivity Change," Review of Economic Studies, Oxford University Press, vol. 34(3), pages 249-283.
    3. Carter, Michael R. & Little, Peter D. & Mogues, Tewodaj & Negatu, Workneh, 2007. "Poverty Traps and Natural Disasters in Ethiopia and Honduras," World Development, Elsevier, vol. 35(5), pages 835-856, May.
    4. Hallegatte, Stéphane & Ghil, Michael & Dumas, Patrice & Hourcade, Jean-Charles, 2008. "Business cycles, bifurcations and chaos in a neo-classical model with investment dynamics," Journal of Economic Behavior & Organization, Elsevier, pages 57-77.
    5. Azariadis, Costas, 1996. "The Economics of Poverty Traps: Part One: Complete Markets," Journal of Economic Growth, Springer, vol. 1(4), pages 449-496, December.
    6. Mark Skidmore & Hideki Toya, 2002. "Do Natural Disasters Promote Long-Run Growth?," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 664-687, October.
    7. Greenwood, Jeremy & Hercowitz, Zvi & Krusell, Per, 1997. "Long-Run Implications of Investment-Specific Technological Change," American Economic Review, American Economic Association, pages 342-362.
    8. Bloom, David E & Canning, David & Sevilla, Jaypee, 2003. "Geography and Poverty Traps," Journal of Economic Growth, Springer, vol. 8(4), pages 355-378, December.
    9. Albala-Bertrand, J. M., 1993. "Political Economy of Large Natural Disasters: With Special Reference to Developing Countries," OUP Catalogue, Oxford University Press, number 9780198287650.
    10. Edward Miguel & Shanker Satyanath & Ernest Sergenti, 2004. "Economic Shocks and Civil Conflict: An Instrumental Variables Approach," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 725-753, August.
    11. Kroll, Cynthia A. & Landis, John D. & Shen, Qing & Stryker, Sean, 1991. "Economic Impacts of the Loma Prieta Earthquake: A Focus on Small Businesses," University of California Transportation Center, Working Papers qt05f3382m, University of California Transportation Center.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-00719269. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.