Benchmarks for Emissions Trading – General Principles for Emissions Scope

Vera Zipperer, Misato Sato () and Karsten Neuhoff ()

No 1712, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: Greenhouse gas emission benchmarks are widely implemented as a policy tool, as more countries move to implement carbon pricing mechanisms for industrial emissions. In particular, benchmarks are used to determine the level of free allowance allocation in emission trading schemes, which are distributed as a measure to prevent carbon leakage. This paper analyses how benchmark designs impact firms’ production and business model decisions, particularly focusing on the coverage of direct and indirect emissions in the benchmark scope. We develop an analytical model and use the example of a steel mill to analyze and quantify how scope of indirect emissions coverage affect incentives. We seek to clarify generalized principles for efficient benchmark design, that provide a predictable policy framework for innovation and investment to decarbonize energy intensive industry.

Keywords: Emissions Trading; Emission Benchmarking; Free allocation; Incentives; Low-Carbon Innovation (search for similar items in EconPapers)
JEL-codes: D04 H25 L51 L61 Q58 (search for similar items in EconPapers)
Pages: 23 p.
Date: 2017
New Economics Papers: this item is included in nep-ene, nep-env and nep-reg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Benchmarks for emissions trading – general principles for emissions scope (2017)
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