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Output-Based Allocation and Output-Based Rebates: A survey

Philippe Quirion

No 2021.03, Working Papers from FAERE - French Association of Environmental and Resource Economists

Abstract: Output-based refunding consists in distributing the value of taxes on pollution, or that of tradable emission allowances, to operators of emitting facilities, in proportion of their current production level. It is called output-based rebating in the case of taxes and output-based allocation in the case of tradable emission allowances. This practice is widespread, especially in climate policies, and has important economic consequences. We analyse these consequences, first in a deterministic setting and then accounting for uncertainty. While output-based refunding is detrimental to welfare in a deterministic, closed economy without prior distortions, it also provides some benefits. In particular, it is an efficient way to limit carbon leakage. Then, we present the implementation of output-based allocation in the European Union, California, China, New-Zealand and Alberta, and discuss whether it should be maintained or phased out in the coming decades.

Keywords: output-based allocation; leakage; output-based rebate; output-based refunding; Emission trading (search for similar items in EconPapers)
JEL-codes: Q52 Q58 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2021-03
New Economics Papers: this item is included in nep-agr, nep-ene and nep-env
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http://faere.fr/pub/WorkingPapers/Quirion_FAERE_WP2021.03.pdf First version, 2021 (application/pdf)

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Chapter: Output-based allocation and output-based rebates: a survey (2022) Downloads
Working Paper: Output-Based Allocation and Output-Based Rebates: A survey (2021) Downloads
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