Does emission permit allocation affect CO2 cost pass-through? A theoretical analysis

Wang, M.; Zhou, P.

doi:10.1016/j.eneco.2017.06.011

Cited by 35 publications

(16 citation statements)

References 36 publications

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“…Thus, in both cases, the price increase for consumers should be the same (Fabra & Reguant, 2014;Klemperer, 2008;Sorrell & Sijm, 2003). However, Wang and Zhou (2017) show theoretically that benchmarking would allow lower pass-through rates (PTRs) than other allocation methods. The PTR as well as the potential of increasing profitability depends on the market structure, namely on the number of competitors as well as on the demand and supply price elasticity (for details see Sijm, Chen, & Hobbs, 2012).…”

Section: Hypothesis No 3: Cost Pass-throughmentioning

confidence: 99%

Why does emissions trading under the EU Emissions Trading System (ETS) not affect firms’ competitiveness? Empirical findings from the literature

2018

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Environmental policies may have important consequences for firms' competitiveness or profitability. For the European Union Emissions Trading System (EU ETS) the empirical literature documents that significant emissions reductions have resulted from it. Surprisingly, however, the literature shows that there have been hardly any concurrent negative effects on firms' competitiveness during the first two phases of the scheme (2005-2012). We show that the main explanations for the absence of negative impacts on competitiveness are a large over-allocation of emissions allowances leading to a price drop and the ability of firms to pass costs onto consumers in some sectors. Cost pass-through combined with free allocation, in turn, partly generated windfall profits. In addition, the relatively low importance of energy costs indicated by their average share in the budgets of most manufacturing industries may have limited the impact of the EU ETS. Finally, small but significant stimulating effects on innovation have been found so far. Several factors suggest that over-allocation is likely to remain substantial in the upcoming periods of the scheme. Therefore, we expect to see no negative competitiveness effects from the EU ETS in Phases III and IV (2013-2030). Key policy insights. Empirical literature on the EU ETS shows that there have been hardly any effects on firms' competitiveness or profitability.. One main explanation is a large over-allocation of emissions allowances leading to a price drop. This reduced incentives for innovation.. Moreover, firms were able to pass costs on to consumers in some sectors which partly generated windfall profits.. Innovation effects have so far been small but positive.. We expect to see no negative competitiveness effects on regulated firms in the near future suggesting that no further reliefs for regulated firms are required.

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Section: Hypothesis No 3: Cost Pass-throughmentioning

confidence: 99%

Why does emissions trading under the EU Emissions Trading System (ETS) not affect firms’ competitiveness? Empirical findings from the literature

2018

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“…A few studies suggest that ordinary carbon trading may have unfair social consequences [21]. Other scholars have studied the design of the carbon market trading mechanism [22][23][24]. For example, Zhang [25] thought that regions or countries must develop according to local conditions.…”

Section: Research On International Forestry Carbon Sequestration and Trade Of Other Pollutantsmentioning

confidence: 99%

Design of Combined Auction Model for Emission Rights of International Forestry Carbon Sequestration and Other Pollutants Based on SMRA

Guo

Hua

et al. 2021

Sustainability

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In this paper, the combined transactions for emission rights of international carbon sequestration and other pollutants in forestry have been taken as the research object, and the Simultaneous Multiple Round Auction (SMRA) theory has been used to design a new model for the current auction transactions. In this paper, the feasibility and application of the SMRA model of reach object are studied by the methods of simulation experiment, model analysis, and analogical analysis, and the promotion of this model is discussed. The results show that the new auction model designed in this paper fills in the blank of the combined auction of international forestry carbon sequestration and other pollutant emission rights. It successfully eliminates the winners’ curse and the losses of the sellers. Meanwhile, it provides a new way of resolving ecological deficits problems, achieving the ultimate goal of an overall reduction in carbon and pollution emission. Moreover, it’s beneficial in resolving the structural contradictions between ecological purification and pollutants discharge, hence maximizing the benefits for all the stakeholders. Finally, it is suggested that the SMRA should be adopted in the international trading of emission rights of international carbon sequestration and other pollutants to promote the emission reduction of greenhouse gases and pollutants.

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“…It is this context of reduction of the global allowance of permitted emissions and heterogeneity of interests and objectives in the negotiations that has raised responses by the academic community in order to propose rational allocation mechanisms for a scarce resource context. Following the survey by Zhou and Wang (2016), different associated methods would have been proposed, for example, indicators (Miketa and Schrattenholzer, 2006), optimization methods (Cantore and Padilla, 2010), game theory (Ren et al, 2015) or hybrid methods, which can yield clearly different results depending on the solution applied (see, for instance, Akhundjanov et al, 2017;Wang and Zhou, 2017;and, He et al, 2018).…”

Section: Introductionmentioning

confidence: 99%

The allocation of CO2 emissions as a claims problem

2020

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This paper proposes to use claims models as a reasonable and operative alternative in order to allocate CO 2 emissions by countries (or groups), in the framework of multilateral negotiations and the fight against climate change. This framework has two characteristics which fits this type of claims models: a restrictive global endowment (the maximum world emissions permitted) and the excess of emissions (and demand) by countries. The proposed methodology consists on establishing some requirements that any admissible distribution solution should satisfy, examining a broad group of theoretical distribution solutions emerged from the specific literature and analyzing their application according to reasonable ordering criteria linked to equity and stability properties. The proposed theoretical framework is applied empirically to an analysis by groups of countries in the period 2010-2050, using various world endowments from Meinshausen et al. (2009), together with claims forecasts associated with the RCP scenarios. The results obtained point out that for intermediate claims scenarios the solutions associated with the constrained equal awards (CEA) and α-minimal (α-min) solutions are typically selected. In particular, these two solutions are clearly equity-sensitive, where the efforts to be made by Asia and OECD are very important, as a whole, and especially in the case of the CEA. Given these circumstances, and the better balance between equity and proportionality associated to the α-min allocation methodology maybe that one would be more operative and acceptable.

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Does emission permit allocation affect CO2 cost pass-through? A theoretical analysis

Cited by 35 publications

References 36 publications

Why does emissions trading under the EU Emissions Trading System (ETS) not affect firms’ competitiveness? Empirical findings from the literature

Why does emissions trading under the EU Emissions Trading System (ETS) not affect firms’ competitiveness? Empirical findings from the literature

Design of Combined Auction Model for Emission Rights of International Forestry Carbon Sequestration and Other Pollutants Based on SMRA

The allocation of CO2 emissions as a claims problem

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