Leakage from Climate Policies and Border-Tax Adjustment: Lessons from a Geographic Model of the Cement Industry

Quirion, Philippe; Demailly, Damien

doi:10.7551/mitpress/9780262073028.003.0016

Cited by 45 publications

(42 citation statements)

References 9 publications

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“…In a state θ, the welfare is the dierence between gross consumer surplus and production cost and environmental damage: (8) and, the expected welfare is…”

Section: General Casementioning

confidence: 99%

“…10%. 7 We abstract from the possible impact from the EU-ETS during those years, given the high level of free allowances and industry behavior based on average rather than marginal carbon price (Ellerman et al 2010) 8 In this context, labor costs cannot be considered as variable costs since specic qualications are required to operate a clinker plant. Hence rms cannot simply re workers when demand is low and hire them again when demand recovers.…”

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confidence: 99%

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Carbon leakage and capacity-based allocations: Is the EU right?

Meunier

Ponssard

Quirion

2014

Journal of Environmental Economics and Management

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Carbon Leakage and Capacity-Based Allocations. Is the EU right? Terms of use: Documents in EconStor mayAbstract Two main approaches have been implemented in regional CO2 markets to address competitiveness and carbon leakage: output based allocation (Australia, California, New Zealand) and capacity based allocation (EU). This paper characterizes the best policy, given that auctioning with border adjustment is excluded. A simple model is used in which the regional demand is subject to business cycles, and the import pressure depends on the demand level and capacity constraints. A combination of output and capacity based allocation is proved to be the optimal second best policy. The EU scheme for 2013-2020 is discussed, using cement as a case study.JEL-Code: D240, L130, H230, L740.

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“…In a state θ, the welfare is the dierence between gross consumer surplus and production cost and environmental damage: (8) and, the expected welfare is…”

Section: General Casementioning

confidence: 99%

mentioning

confidence: 99%

Carbon leakage and capacity-based allocations: Is the EU right?

Meunier

Ponssard

Quirion

2014

Journal of Environmental Economics and Management

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“…Ismer and Neuhoff 2007). Demailly and Quirion (2008a) also simulate a carbon tax in Annex I, with and without border adjustments, but this time in a global partial equilibrium model of the cement industry. Here again, BAs efficiently tackle leakage: the leakage-to-reduction ratio falls from 25% without BA to -2% or 4%, depending on the level of the border adjustment assumed.…”

Section: Border Adjustmentsmentioning

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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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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“…These factual observations have been embedded in some applied numerical studies. For instance Demailly and Quirion (2008) The electricity sector provides another empirical context in which our framework may be relevant. It is a clear example in which demand is uncertain and short term capacity constraints play a major role in the selection of the optimal technology mix.…”

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confidence: 99%

Capacity decisions with demand fluctuations and carbon leakage

Meunier

Ponssard

2014

Resource and Energy Economics

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For carbon-intensive, internationally-traded industrial goods, a unilateral increase in the domestic CO 2 price may result in the reduction of the domestic production but an increase of imports. In such sectors as electricity, cement or steel, the trade ows result more from shortterm regional disequilibria between supply and demand than from international competition. This paper formalizes this empirical observation and characterizes its impact on leakage. Domestic rms invest in home plants under uncertainty; then, as uncertainty unfolds, they may source the home market from their home plants or from imports. We prove that there would be no leakage in the short-term (without capacity adaptation) but there would be in the long-term (with capacity adaption). Furthermore, the larger the uncertainty the larger the leakage is. We also characterize the impacts of uncertainty on the (short-term and long-term) pass-through rates. In the concluding section we brie y discuss the implications of these results for the evaluation of climate policies. JEL Classi cation: D81, D92, Q56, L13.

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Leakage from Climate Policies and Border-Tax Adjustment: Lessons from a Geographic Model of the Cement Industry

Cited by 45 publications

References 9 publications

Carbon leakage and capacity-based allocations: Is the EU right?

Carbon leakage and capacity-based allocations: Is the EU right?

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

Capacity decisions with demand fluctuations and carbon leakage

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