Carbon Leakage and capacity-based allocations : is the EU right?

Guy Meunier; Jean-Pierre Ponssard; Philippe Quirion

Two main approaches have been implemented in regional CO2 markets to address competitiveness and carbon leakage: output based allocation (Australia, California, New Zealand) and capacity based allocation (EU). This paper characterizes the best policy, given that auctioning with border adjustment is excluded. A simple model is used in which the regional demand is subject to business cycles, and the import pressure depends on the demand level and capacity constraints. A combination of output and capacity based allocation is proved to be the optimal second best policy. The EU scheme for 2013-2020 is discussed, using cement as a case study. -- cap and trade ; output based allocation ; subsidization of capacity ; climate policy ; carbon leakage ; competitiveness

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Year of publication:	2012
Authors:	Meunier, Guy ; Ponssard, Jean-Pierre ; Quirion, Philippe
Publisher:	München : CESifo
Subject:	Industrie \| Manufacturing industries \| Energiekonsum \| Energy consumption \| Auslandsverlagerung \| Offshoring \| Klimaschutz \| Climate protection \| Emissionshandel \| Emissions trading \| Allokation \| Allocation \| Luftverschmutzung \| Air pollution \| Produktionskapazität \| Production capacity \| Internationaler Wettbewerb \| International competition \| Second Best \| Second best \| Theorie \| Theory \| EU-Staaten \| EU countries \| Australien \| Australia