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Carbon cost pass-through in industrial sectors

Karsten Neuhoff () and Robert Ritz

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: To achieve the ambitions of the 2015 Paris Climate Agreement, the decarbonization of energy-intensive industrial sectors is becoming increasingly important. This paper focuses on the economics of carbon cost pass-through: the change in product prices induced by carbon pricing. We provide a theoretical framework to understand pass-through at the sectoral level and a constructive review of the empirical evidence from the EU ETS and other jurisdictions. Our analysis is structured around three key drivers: international trade, market structure, and free allowance allocation. We provide a synthesis of our key findings for policymakers and identify gaps in the literature for future research.

Keywords: Carbon pricing; cost pass-through; free allocation; full carbon price internalization; international trade; market structure (search for similar items in EconPapers)
JEL-codes: L11 L70 Q54 Q58 (search for similar items in EconPapers)
Date: 2019-10-31
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-reg
Note: rar36
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