On the empirical content of carbon leakage criteria in the EU Emissions Trading Scheme

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...

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Bibliographic Details
Published in:Ecological economics Vol. 105; pp. 78 - 88
Main Authors: Martin, Ralf, Muûls, Mirabelle, de Preux, Laure B., Wagner, Ulrich J.
Format: Journal Article
Language:English
Published: Amsterdam Elsevier B.V 01.09.2014
Elsevier
Subjects:
Animal, plant and microbial ecology
Applied ecology
auctions
Biological and medical sciences
carbon
Carbon leakage
developing countries
Emissions trading
environmental markets
EU ETS
European Union
Firm data
Fundamental and applied biological sciences. Psychology
income
Industrial relocation
industry
interviews
managers
Permit allocation
prices
risk
trade
Q54
Firm data
Industrial relocation
Emissions trading
H23
H25
Carbon leakage
F18
Permit allocation
EU ETS
Q52
Environment economy
Gas emission
Emission permit
Kyoto Protocol
Carbon dioxide
Empirical method
Ecology
Industry
Relocation
Firm
ISSN:0921-8009
Online Access:Get full text
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Summary: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 €3billion per year, based on a permit price of €30.
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ISSN:0921-8009
DOI:10.1016/j.ecolecon.2014.05.010