Over-Allocation Profits, Inefficiencies and Competition Issues: A Close-Up into the Interaction Between the EU ETS and the Steel Industry

Maria-Eugenia Sanin and Sylvain Sourisseau

Revue économique, 2023, vol. 74, issue 6, 1067-1097

Abstract: Sectors subject to international competition under the European Emission Trading Scheme (EU ETS) still benefit from free allocation of European allowances (EUAs). Herein we study one of those beneficiaries: the crude steel industry. Firstly, we find it is not really exposed to international. Moreover, we find that the market is concentrated and that the firm with most market power throughout 2005?2018 is the one receiving most of free EUAs capturing most of the over-allocation profits (34.87% in average). Finally, after performing a frontier analysis we find that the market leader is also the least efficient in producing crude steel and consequently the least efficient in terms of CO 2 intensity. These findings, together with the fact that we do not observe a decrease in crude steel production, suggest the EU ETS has failed to provide incentives for decarbonization in this sector.

Keywords: ETS; emission trading; steel; over-allocation profits; competition; CO; 2 (search for similar items in EconPapers)
Date: 2023
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