Industry Compensation Under Relocation Risk: A Firm-Level Analysis of the EU Emissions Trading Scheme

Ralf Martin, Mirabelle Muûls (), Ulrich Wagner and Laure de Preux

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: When industry compensation is offered to prevent relocation of regulated firms, efficiency requires that payments be distributed across firms so as to equalize marginal relocation probabilities, weighted by the damage caused by relocation. We formalize this fundamental economic logic and apply it to analyze industry compensation rules proposed under the EU Emissions Trading Scheme, which allocate permits for free to carbon and trade intensive industries. We estimate that this practice will result in overcompensation in the order of €6.7 billion every year. Efficient allocation would reduce the aggregate risk of job loss by two thirds without increasing aggregate compensation.

Keywords: Industry compensation; industrial relocation; emissions trading; permit allocation; EU ETS; firm data (search for similar items in EconPapers)
JEL-codes: F18 H23 H25 Q52 Q54 (search for similar items in EconPapers)
Date: 2012-06
New Economics Papers: this item is included in nep-ene, nep-env and nep-eur
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Industry Compensation under Relocation Risk: A Firm-Level Analysis of the EU Emissions Trading Scheme (2014)
Working Paper: Industry compensation under relocation risk: a firm-level analysis of the EU emissions trading scheme (2014)
Working Paper: Industry Compensation Under Relocation Risk: A Firm-Level Analysis of the EU Emissions Trading Scheme (2013)
Working Paper: Industry compensation under relocation risk: a firm-level analysis of the EU Emissions Trading Scheme (2012)
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