Output-based allocations in pollution markets with uncertainty and self-selection

Meunier, Guy; Montero, Juan‐Pablo; Ponssard, Jean-Pierre

doi:10.1016/j.jeem.2017.10.001

Cited by 18 publications

(14 citation statements)

References 35 publications

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“…(15) s = tē y , 12 Gersbach and Requate (2004) use this setup in the competitive version of their model. Meunier et al (2018) explore situations without budget balance and under uncertainty. 13 See Fischer (2011) and Sterner and Isaksson (2006) for a model of an OBR system where strategic manipulation of the total emission revenues is discussed.…”

Section: Expenditure-based Refunding (Ebr)mentioning

confidence: 99%

Refunding Emission Payments: Output-Based Versus Expenditure-Based Refunding

Hagem

Hoel

Sterner

2020

Environ Resource Econ

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We analyse two mechanism designs for refunding emission payments to polluting firms: output-based refunding (OBR) and expenditure-based refunding (EBR). In both instruments, emission fees are returned to the polluting industry, typically making the policy more politically acceptable than a standard tax. The crucial difference between OBR and EBR is that the fees are refunded in proportion to output in the former but in proportion to the firms’ expenditure on abatement technology equipment in the latter. To achieve the same abatement target as a standard tax, the fee level in the OBR design is higher, whereas the fee level in the EBR design is lower. The use of OBR and EBR may lead to large differences in the distribution of output and costs across firms. Both designs imply a cost-ineffective provision of abatement, as firms put relatively too much effort into reducing emissions through abatement technology compared with reducing output. However, a standard tax may be politically infeasible and maintaining output may be seen as a political advantage by policymakers if they seek to avoid activity reduction in the regulated sector.

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Section: Expenditure-based Refunding (Ebr)mentioning

confidence: 99%

Refunding Emission Payments: Output-Based Versus Expenditure-Based Refunding

Hagem

Hoel

Sterner

2020

Environ Resource Econ

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“…In such a case the two OBA rates will differ from the leakage rates because OBA rates play an additional role now. As documented by Meunier et al (2016), they also offer the possibility to partially index the total cap to actual realization of demand, which vary period after period. However, this indexing comes at a price since the introduction of a wedge between OBA and leakage rates introduces an inefficiency.…”

Section: Optimal Design Under Uncertaintymentioning

confidence: 99%

“…We shall address this question building on a recent paper of the authors (Meunier et al, 2016) in which it is demonstrated that, even in absence of leakage, there are good reasons to introduce OBA for sectors subject to large demand and supply shocks. From a welfare point of view, in absence of leakage but with uncertainty, the impact of using OBA can be understood using the price versus quantity framework introduced by Weitzman (1974).…”

Section: Introductionmentioning

confidence: 99%

Using output-based allocations to manage volatility and leakage in pollution markets

2017

Self Cite

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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. Output-based allocations (OBAs) are typically used in emission trading schemes to mitigate leakage in sectors at risk. Recent work has shown they may also help to stabilize prices in markets subject to supply and demand shocks. We extend previous work to simultaneously include both leakage and volatility. Motivated by discussions on how to reform carbon markets around the world, and in Europe in particular, we use our model to revisit several critical issues in the design of these markets. In particular, we look at how different OBA schemes manage permit price uctuations and what are the implications of deducting OBA permits (the majority going to trade-exposed and carbon intensive sectors) from the overall permit allocation, so as to keep the global cap on emissions fixed (as it is the case in California and in the EU). Terms of use: Documents inJEL-Codes: D240, L130, H230, L740.

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“…For example, as we show in this paper (Section 3.3), cumulative emission reductions due to national coal phase-out policies in the period 2021-2030 are in the order of 1 Gt CO 2 e. A significant allowance surplus would therefore develop if the cap is not adjusted to reflect this emission reduction due to interacting policies. The literature has developed a variety of proposals on how to maintain scarcity in the EU ETS, from delegating cap setting power to an independent authority akin to a central bank (De Perthuis & Trotignon, 2014) to introducing a price collar (Fuss et al, 2018) and flexibility in the cap (Meunier et al, 2018).…”

Section: Introductionmentioning

confidence: 99%

The EU ETS to 2030 and beyond: adjusting the cap in light of the 1.5°C target and current energy policies

2021

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The Paris Agreement calls on countries to pursue efforts to limit global average temperature rise to 1.5°C. We derive a 2016-2050 emission budget for the EU Emissions Trading System (EU ETS) based on cost-effectiveness criteria aimed at achieving the 1.5°C target with a 50%-66% probability, and translate it into a cap reduction path. We show that, under current ETS parameters, the vast majority of this budget will be consumed by 2030. Meeting the budget under current 2030 EU ETS parameters would require drasticand probably unrealisticadditional efforts after 2030. We derive a cost-effective scenario delivering a smoother and more credible emission pathway. We show that recently increased EU targets for renewable energy and energy efficiency, along with national coal phase-out policies up to 2030 provide cap adjustment potential. If the cap is adjusted to reflect these policies and if phased-out coal capacities are fully substituted through renewable energy, emissions in ETS sectors could decline by 57% through to 2030. This approximates our cost-effective scenario and translates into a linear reduction factor (LRF) for the cap of 3.6% for the period 2021-2030. Key policy insights:. Paris Agreement-compatible emission budgets can serve as a guideline to define the minimum requirement for emission reductions in the EU ETS. . The globally cost-effective emissions budget for EU ETS sectors in line with limiting global warming to 1.5°C is about 30 Gt CO 2 e for 2016-2050. . During the next decade the annual emissions cap must decrease much faster than currently planned to meet the cost-effective budget. . Achieving a globally cost-effective emissions path requires that the linear reduction factor (LRF) of the EU ETS cap for 2021-2030 is raised from currently 2.2% to at least 4%. . Incorporating EU targets for renewable energy and energy efficiency, as well as national coal phase-outs, enables an increase of the LRF for 2021-2030 to 3.6% without an additional abatement burden on EU ETS installations.

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Output-based allocations in pollution markets with uncertainty and self-selection

Cited by 18 publications

References 35 publications

Refunding Emission Payments: Output-Based Versus Expenditure-Based Refunding

Refunding Emission Payments: Output-Based Versus Expenditure-Based Refunding

Using output-based allocations to manage volatility and leakage in pollution markets

The EU ETS to 2030 and beyond: adjusting the cap in light of the 1.5°C target and current energy policies

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