CO&lt;SUB&gt;2&lt;/SUB&gt; abatement, competitiveness and leakage in the European cement industry under the EU ETS: grandfathering versus output-based allocation

Demailly, Damien; Quirion, Philippe

doi:10.3763/cpol.2006.0606

Cited by 94 publications

(41 citation statements)

References 9 publications

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“…Interestingly, the fact that EBITDA rises less with OB updating is probably unexpected to industry lobbyists since most of them favour outputbased allocation (e.g., UNICE, 2002), which is a form of instantaneous OB updating. Yet it is consistent with other simulations (Burtraw et al, 2001, Demailly andQuirion, 2006).…”

supporting

confidence: 82%

European Emission Trading Scheme and competitiveness: A case study on the iron and steel industry

Demailly¹,

Quirion²

2008

Energy Economics

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293

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We quantify the impact of the European Emission Trading Scheme (ETS) on the two dimensions of competitiveness -production and profitability -for the iron and steel industry. Among those covered by the scheme, this sector is one of the most exposed, since it is both highly CO 2 -intensive and relatively open to international trade. We also examine the robustness of these results to various assumptions: marginal abatement cost curve, trade and demand elasticities, as well as pass-through rates and updating of allocation rules, of which the latter two are scarcely debated.We conclude that for this sector, competitiveness losses are small. We prove this conclusion to be robust. Hence arguments against tightening the environmental stringency of the ETS in Phase II are not justified on grounds of competitiveness loss. Our systematic sensitivity analysis allows us to identify the important assumptions for each output variable. It turns out that pass-through rates and updating rules are significant, despite being often implicit and least debated in existing analyses.

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supporting

confidence: 82%

European Emission Trading Scheme and competitiveness: A case study on the iron and steel industry

Demailly¹,

Quirion²

2008

Energy Economics

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293

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“…4 Extending an earlier work by Demailly and Quirion (2006) on the cement sector, Monjon and Quirion (2011) use a computable partial equilibrium model to compare border adjustments and output based allocation. They find that the most efficient way to prevent carbon leakage in the EU ETS is by combining full auctioning of emission allowances with border adjustments.…”

Section: Permit Allocationmentioning

confidence: 99%

On the Empirical Content of Carbon Leakage Criteria in the EU Emissions Trading Scheme

et al. 2013

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The EU Emissions Trading Scheme continues to exempt industries deemed at risk of carbon leakage from permit auctions. Carbon leakage risk is established based on the carbon intensity and trade exposure of each 4-digit industry. Using a novel measure of carbon leakage risk obtained in interviews with almost 400 managers at regulated firms in six countries, we show that carbon intensity is strongly correlated with leakage risk whereas overall trade exposure is not. In spite of this, most exemptions from auctioning are granted to industries with high trade exposure to developed and less developed countries. Our analysis suggests two ways of tightening the exemption criteria without increasing relocation risk among non-exempt industries. The first one is to exempt trade exposed industries only if they are also carbon intensive. The second one is to consider exposure to trade only with less developed countries. By modifying the carbon leakage criteria along these lines, European governments could raise additional revenue from permit auctions of up to €3 billion per year, based on a permit price of €30.

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“…In the logit function representing the choice between clinker (either imported or domestic) and substitutes, the parameters are calibrated to represent the share of substitutes in cement in 2006 (23%) and an ad hoc assumption that a doubling of the clinker cost, other things equal, would entail a doubling of the share of substitutes in cement. In the logit function representing the choice between domestic or imported clinker, the parameters are calibrated to represent the share of imported clinker in 2006 (6%) and to fit the following result from GEO-CEMSIM, a detailed geographic model of the world cement industry featuring transportation costs and capacity constraints: with a CO 2 price of €20, the share of imported clinker doubles (Demailly and Quirion, 2006).…”

Section: Targeted Productsmentioning

confidence: 99%

“…Demailly and Quirion (2006) use a modified version of the world partial equilibrium model of the cement industry which was used by the same authors (Demailly and Quirion, 2008a) to assess a BA. They compare full auctioning to OBA for a unilateral implementation of the EU ETS and show that OBA would efficiently tackle leakage: at €20/tCO2, the leakage-to-reduction ratio would fall from 50% 8 to 9%.…”

Section: Output-based Allocationmentioning

confidence: 99%

Addressing leakage in the EU ETS: Border adjustment or output-based allocation?

Monjon

Quirion

2011

Ecological Economics

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112

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The EU ETS has been criticised for threatening the competitiveness of European industry and generating carbon leakage, i.e. increasing foreign greenhouse gas emissions. Two main options have been put forward to tackle these concerns: border adjustments and output-based allocation, i.e. allocation of free allowances in proportion to current production. We compare various configurations of these two options, as well as a scenario with full auctioning and no border adjustment. Against this background, we develop a model of the main sectors covered by the EU ETS: electricity, steel, cement and aluminium. We conclude that the most efficient way to tackle leakage is auctioning with border adjustment, which generally induces a negative leakage (a spillover). Another relatively efficient policy is to combine auctioning in the electricity sector and output-based allocation in exposed industries, especially if free allowances are given both for direct and indirect emissions, i.e. those generated by the generation of the electricity consumed. Although output-based allocation is generally less effective than border adjustment to tackle leakage, it is more effective to mitigate production losses in the sectors affected by the ETS.Keywords : Emission trading, border adjustment, output-based allocation, competitiveness, carbon leakage. Limiter les fuites dans le système européen d'échange de quotas d'émission de gaz à effet deserre : ajustement aux frontières ou allocation basée sur la production courante ? RésuméLe système européen d'échange de quotas d'émission de gaz à effet de serre (GES) a été critiqué comme menaçant la compétitivité de l'industrie européenne et comme générant des fuites de carbone, c'est-à-dire une augmentation des émissions de GES à l'étranger. Principalement, deux options ont été avancées pour traiter ces problèmes : l'ajustement aux frontières et l'allocation basée sur la production, c'est-à-dire une allocation gratuite de permis proportionnelle à la production courante. Nous développons un modèle représentant les principaux secteurs inclus dans le système européen de quotas (électricité, acier, ciment et aluminium) et analysons plusieurs configurations de chacune de ces options, ainsi qu'un scénario avec enchères et sans ajustement aux frontières. Nous trouvons qu'une allocation par l'intermédiaire d'enchères, complétée par un ajustement aux frontières, permet de limiter le plus les fuites de carbone, voire de diminuer les émissions dans les pays hors UE27 (fuites négatives). Une autre politique relativement efficace est de combiner des enchères pour le secteur de l'électricité et une allocation basée sur la production pour les secteurs exposés aux fuites de carbone, en particulier si la quantité de permis distribuée tient compte des émissions directes et indirectes (liées à la génération de l'électricité consommée). Bien que cette dernière option soit généralement moins efficace qu'un ajustement aux frontières pour limiter les fuites de carbone, elle permet néanmoins de réduire les pertes de...

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CO<SUB>2</SUB> abatement, competitiveness and leakage in the European cement industry under the EU ETS: grandfathering versus output-based allocation

Cited by 94 publications

References 9 publications

European Emission Trading Scheme and competitiveness: A case study on the iron and steel industry

European Emission Trading Scheme and competitiveness: A case study on the iron and steel industry

On the Empirical Content of Carbon Leakage Criteria in the EU Emissions Trading Scheme

Addressing leakage in the EU ETS: Border adjustment or output-based allocation?

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