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Output-Based Allocation of Emissions Permits for Mitigating the Leakage and Competitiveness Issues for the Japanese Economy

Author

Listed:
  • Takeda, Shiro
  • Arimura, Toshi H.
  • Tamechika, Hanae
  • Fischer, Carolyn

    () (Resources for the Future)

  • Fox, Alan K.

Abstract

The adoption of domestic emissions trading schemes (ETS) can impose a heavy burden on energy-intensive industries. In particular, energy-intensive industries competing with foreign competitors could lose their international edge. Although the abatement of carbon dioxide (CO2) emissions in industrialized countries entails the reduction of their energy-intensive production, a corresponding increase in the production of energy-intensive goods in countries without CO2 regulations may lead to carbon “leakage.” This paper examines the effects of various allocation methods for granting emissions permits in the Japanese ETS on the economy and CO2 emissions using a multiregional and multisector computable general equilibrium model. Specifically, we apply the Fischer and Fox (2007) model to the Japanese economy to address carbon leakage and competitiveness issues. We compare auction schemes, grandfathering schemes, and output-based allocation (OBA) schemes. We further extend the model by examining a combination of auctions and OBA. Though the auction scheme is found to be the best in terms of macroeconomic impacts (welfare and GDP effects), the leakage rate is high and the harm to energy-intensive sectors can be significant. OBA causes less leakage and damage to energy-intensive sectors, but the macroeconomic impact is undesirable. Considering all three effects—leakage, competitiveness, and macroeconomics—we find that combinations of auctions and OBA (with gratis allocations solely to energy-intensive, trade-exposed sectors) are desirable.

Suggested Citation

  • Takeda, Shiro & Arimura, Toshi H. & Tamechika, Hanae & Fischer, Carolyn & Fox, Alan K., 2011. "Output-Based Allocation of Emissions Permits for Mitigating the Leakage and Competitiveness Issues for the Japanese Economy," Discussion Papers dp-11-40, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-11-40
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    References listed on IDEAS

    as
    1. Goulder, Lawrence H. & Parry, Ian W. H. & Williams III, Roberton C. & Burtraw, Dallas, 1999. "The cost-effectiveness of alternative instruments for environmental protection in a second-best setting," Journal of Public Economics, Elsevier, vol. 72(3), pages 329-360, June.
    2. Christoph Böhringer & Andreas Lange, 2005. "Economic Implications of Alternative Allocation Schemes for Emission Allowances," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(3), pages 563-581, September.
    3. Dissou Yazid, 2006. "Efficiency and Sectoral Distributional Impacts of Output-Based Emissions Allowances in Canada," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 5(1), pages 1-33, September.
    4. Jean-Marc Burniaux & Joaquim Oliveira Martins, 2000. "Carbon Emission Leakages: A General Equilibrium View," OECD Economics Department Working Papers 242, OECD Publishing.
    5. Jensen, Jesper & Rasmussen, Tobias N., 2000. "Allocation of CO2 Emissions Permits: A General Equilibrium Analysis of Policy Instruments," Journal of Environmental Economics and Management, Elsevier, vol. 40(2), pages 111-136, September.
    6. Parry, Ian W. H. & Williams, Roberton III & Goulder, Lawrence H., 1999. "When Can Carbon Abatement Policies Increase Welfare? The Fundamental Role of Distorted Factor Markets," Journal of Environmental Economics and Management, Elsevier, vol. 37(1), pages 52-84, January.
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    Citations

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    Cited by:

    1. Frédéric Branger & Misato Sato, 2017. "Solving the clinker dilemma with hybrid output-based allocation," Climatic Change, Springer, vol. 140(3), pages 483-501, February.
    2. Bin Ye & Jingjing Jiang & Lixin Miao & Ji Li & Yang Peng, 2015. "Innovative Carbon Allowance Allocation Policy for the Shenzhen Emission Trading Scheme in China," Sustainability, MDPI, Open Access Journal, vol. 8(1), pages 1-23, December.
    3. repec:gam:jsusta:v:8:y:2015:i:1:p:3:d:61052 is not listed on IDEAS
    4. Jared C. Carbone & Nicholas Rivers, 2014. "Climate policy and competitiveness: Policy guidance and quantitative evidence," Working Papers 2014-05, Colorado School of Mines, Division of Economics and Business.
    5. repec:eee:appene:v:204:y:2017:i:c:p:607-619 is not listed on IDEAS
    6. repec:gam:jeners:v:11:y:2018:i:3:p:559-:d:134815 is not listed on IDEAS
    7. repec:wsi:ccexxx:v:03:y:2012:i:01:n:s2010007812500030 is not listed on IDEAS
    8. Jie Wu & Jun-Fei Chu & Liang Liang, 2016. "Target setting and allocation of carbon emissions abatement based on DEA and closest target: an application to 20 APEC economies," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 84(1), pages 279-296, November.
    9. repec:eee:eneeco:v:63:y:2017:i:c:p:332-347 is not listed on IDEAS

    More about this item

    Keywords

    climate change; emissions trading; emissions permit allocations; output-based allocation; auction; grandfathering; international competitiveness; carbon leakage; CGE analysis;

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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