Carbon Leakage and Capacity-Based Allocations. Is the EU right?

Guy MEUNIER (), Jean-Pierre Ponssard () and Philippe Quirion

Working Papers from HAL

Abstract: 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.

New Economics Papers: this item is included in nep-ene, nep-env and nep-eur
Date: 2012-02-22
Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00672907
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Working Paper: Carbon Leakage and Capacity-Based Allocations. Is the EU right? (2012)
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