Emissions Trading and Profit-Neutral Grandfathering
This paper examines the amount of grandfathering needed for an emissions trading scheme (ETS) to have a neutral impact on firm profits. We provide a simple formula to calculate profit-neutral grandfathering in a Cournot model with firms of different sizes and a general demand function. Using this formula, we obtain estimates of profit-neutral grandfathering for the electricity, cement, newsprint and steel industries. Under the current EU ETS, firms obtain close to full grandfathering; we show that while this may still leave some firms worse off, others have probably benefitted substantially. We find no evidence that any industry as a whole could be worse off with full grandfathering. We also show that the common presumption that a higher rate of cost pass-through lowers profit-neutral grandfathering is unreliable
|Date of creation:||01 Dec 2006|
|Contact details of provider:|| Postal: Manor Rd. Building, Oxford, OX1 3UQ|
Web page: http://www.economics.ox.ac.uk/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lisbeth la Cour & H. Møllgaard, 2002. "Market Domination: Tests Applied to the Danish Cement Industry," European Journal of Law and Economics, Springer, vol. 14(2), pages 99-127, September.
- Xavier Freixas & Roger Guesnerie & Jean Tirole, 1985. "Planning under Incomplete Information and the Ratchet Effect," Review of Economic Studies, Oxford University Press, vol. 52(2), pages 173-191.
- Maddala, G S, et al, 1997. "Estimation of Short-Run and Long-Run Elasticities of Energy Demand from Panel Data Using Shrinkage Estimators," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(1), pages 90-100, January.
- Massimo Filippini, 1999. "Swiss residential demand for electricity," Applied Economics Letters, Taylor & Francis Journals, vol. 6(8), pages 533-538.
- Lars-Hendrik Röller & Frode Steen, 2006. "On the Workings of a Cartel: Evidence from the Norwegian Cement Industry," American Economic Review, American Economic Association, vol. 96(1), pages 321-338, March.
- Fullerton, Don & Metcalf, Gilbert E., 2002.
Handbook of Public Economics,
in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 26, pages 1787-1872
- Gilbert E. Metcalf, 2006. "Tax Incidence," Discussion Papers Series, Department of Economics, Tufts University 0607, Department of Economics, Tufts University.
- Don Fullerton & Gilbert E. Metcalf, 2001. "Tax Incidence," Discussion Papers Series, Department of Economics, Tufts University 0106, Department of Economics, Tufts University.
- Don Fullerton & Gilbert E. Metcalf, 2002. "Tax Incidence," NBER Working Papers 8829, National Bureau of Economic Research, Inc.
- Kimmel, Sheldon, 1992. "Effects of Cost Changes on Oligopolists' Profits," Journal of Industrial Economics, Wiley Blackwell, vol. 40(4), pages 441-449, December.
- M. L. Chas-Amil & J. Buongiorno, 2000. "The demand for paper and paperboard: econometric models for the European Union," Applied Economics, Taylor & Francis Journals, vol. 32(8), pages 987-999.
- Jans, Ivette & Rosenbaum, David I., 1997. "Multimarket contact and pricing: Evidence from the U.S. cement industry," International Journal of Industrial Organization, Elsevier, vol. 15(3), pages 391-412, May.
- Herman Vollebergh & Jan Vries & Paul Koutstaal, 1997. "Hybrid carbon incentive mechanisms and political acceptability," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 9(1), pages 43-63, January.
- Richard A. Lord & W. Ken Farr, 2003. "Collusion and Financial Leverage: An Analysis of the Integrated Mill Steel Industry," Financial Management, Financial Management Association, vol. 32(1), pages -, Spring.
- Szabo, Laszlo & Hidalgo, Ignacio & Ciscar, Juan Carlos & Soria, Antonio, 2006. "CO2 emission trading within the European Union and Annex B countries: the cement industry case," Energy Policy, Elsevier, vol. 34(1), pages 72-87, January.
- Seade, Jesus K, 1980. "On the Effects of Entry," Econometrica, Econometric Society, vol. 48(2), pages 479-89, March.
When requesting a correction, please mention this item's handle: RePEc:oxf:wpaper:295. 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: (Monica Birds)
If references are entirely missing, you can add them using this form.