Pollution Permit Market and International Trade-Exposed Sector: Differentiated Allocations versus Border Adjustment

Michel Mougeot and Florence Naegelen

Journal of Institutional and Theoretical Economics (JITE), 2020, vol. 176, issue 3, 473-495

Abstract: To limit the loss of competitiveness when domestic firms are subject to stronger regulation than international competitors, a cap-and-trade policy can be associated either with partial grandfathering or with border adjustment. We compare the two policies from a domestic social-welfare point of view when distributional concerns matter. We exhibit the conditions under which these policies have to be implemented, and we show that exportside border adjustment welfare-dominates partial grandfathering. However, the former policy results in a higher profit in the export sector but both a lower consumer surplus and lower profits of domestic-market-oriented firms.

Keywords: asymmetric regulation; border adjustment; exposed industries; grand-fathering; pollution permits (search for similar items in EconPapers)
JEL-codes: F18 H23 Q52 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Pollution Permit Market and International Trade-exposed Sector: Differentiated Allocations versus Border Adjustment (2020)
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DOI: 10.1628/jite-2020-0031

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