Efficiency Losses from Overlapping Economic Instruments in European Carbon Emissions Regulation

Christoph Böhringer, Henrike Koschel and Ulf Moslener

No 06-018, ZEW Discussion Papers from ZEW - Leibniz Centre for European Economic Research

Abstract: Energy markets and energy-intensive industries in all EU member states – especially in Germany – are subject to a diverse set of policies related to climate change. We analyse the potential efficiency losses from simultaneous application of emission taxes and emissions trading in qualitative and quantitative terms within a partial equilibrium framework for the EU. It turns out that those firms within the EU Emissions Trading Scheme (EU ETS) which at the same time are subject to domestic energy or carbon taxes will abate inefficiently much while other firms within the EU ETS will benefit from lower international emission permit prices. The same logic disproves the argument that additional national emission taxes will reduce inefficiencies in abatement supposed to be resulting from allowance (over-) allocation. In essence, unilateral emission taxes within the EU ETS are ecologically ineffective and subsidise net permit buyers. Thus, all firms that are subject to emissions trading and any CO2 emission taxes at the same time should be exempt from the latter. The foregone tax revenue could be generated by auctioning a small fraction of the permits instead. This would be cheaper for the emissions trading sectors as a whole and could be compatible even with the tight auctioning restrictions of the EU directive.

Keywords: emissions trading; emission taxes; National Allocation Plans (search for similar items in EconPapers)
JEL-codes: D61 H21 H22 Q58 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-eec, nep-ene, nep-env and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:4597

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