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Swedish Industry and Kyoto – An Assessment of the Effects of the European CO2 Emission Permit Trading System

Author

Listed:
  • Brännlund, Runar

    () (Department of Economics, Umeå University)

  • Lundgren, Tommy

    () (Department of Forest Economics)

Abstract

We assess the effects on Swedish industry input and output demands of different climate policy scenarios connected to energy policy induced by the Kyoto protocol. A unique data set containing firm level data on outputs and inputs during the years 1991 – 2001 is used to estimate a factor demand model, which is then simulated for different policy scenarios. Sector specific estimation suggests that the proposed quadratic profit function specification exhibit properties and robustness that are consistent with economic theory; that is, all own-price elasticities are negative and all output elasticities are positive. Furthermore, the elasticities show that the input demands are, in most cases, relatively inelastic. Simulation of the model for 6 different policy scenarios reveal that the effects on Swedish base industry of a EU level permit trade system is dependent on (i) removal or no removal of current CO2 tax, (ii) the established price of permits, and (iii) what will happen to the electricity price. Our analysis show that changes in electricity price may be more important than the price of permits for some sectors.

Suggested Citation

  • Brännlund, Runar & Lundgren, Tommy, 2005. "Swedish Industry and Kyoto – An Assessment of the Effects of the European CO2 Emission Permit Trading System," Umeå Economic Studies 668, Umeå University, Department of Economics.
  • Handle: RePEc:hhs:umnees:0668
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    References listed on IDEAS

    as
    1. Lundgren, Tommy & Sjostrom, Magnus, 2001. "A flexible specification of adjustment costs in dynamic factor demand models," Economics Letters, Elsevier, vol. 72(2), pages 145-150, August.
    2. Brannlund, Runar & Lundgren, Tommy, 2004. "A dynamic analysis of interfuel substitution for Swedish heating plants," Energy Economics, Elsevier, vol. 26(6), pages 961-976, November.
    3. Lau, Lawrence J, 1972. "Profit Functions of Technologies with Multiple Inputs and Outputs," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 281-289, August.
    4. Chambers,Robert G., 1988. "Applied Production Analysis," Cambridge Books, Cambridge University Press, number 9780521314275, April.
    5. Martin Hill & Bengt Kristöm, 2002. "Sectoral EU-trading and other Climate Policy Options: Impacts on the Swedish Economy," Working Paper Series 02/328, Swedish University of Agricultural Sciences, Department of Forest Economics.
    6. Lau, Lawrence J., 1976. "A characterization of the normalized restricted profit function," Journal of Economic Theory, Elsevier, vol. 12(1), pages 131-163, February.
    7. Charlotte Nilsson & Bengt Kristöm, 2002. "The Costs of Going from Kyoto to Marrakech: Swedish Carbon Policy in a Multi-Regional Model," Working Paper Series 02/327, Swedish University of Agricultural Sciences, Department of Forest Economics.
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    Cited by:

    1. Brännlund, Runar & Lundgren, Tommy & Marklund, Per-Olov, 2014. "Carbon intensity in production and the effects of climate policy—Evidence from Swedish industry," Energy Policy, Elsevier, vol. 67(C), pages 844-857.
    2. Hammar, Henrik & Lundgren, Tommy & Sjöström, Magnus, 2006. "The significance of transport costs in the Swedish forest industry," Working Papers 97, National Institute of Economic Research.

    More about this item

    Keywords

    CO2- emissions; factor demand; fossil fuels; tradable permit market;

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • L70 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - General
    • 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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