Publication: Industry compensation under recolation risk: a firm-level analysis of the EU emissions trading scheme
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Publication date
2014-08
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Publisher
American Economic Association
Abstract
When regulated firms are offered compensation to prevent them from relocating, efficiency requires
that payments be distributed across firms so as to equalize marginal relocation probabilities, weighted
by the damage caused by relocation. We formalize this fundamental economic logic and apply it to
analyzing compensation rules proposed under the EU Emissions Trading Scheme, where emission
permits are allocated free of charge to carbon intensive and trade exposed industries. We show that
this practice results in substantial overcompensation for given carbon leakage risk. Efficient permit
allocation reduces the aggregate risk of job loss by more than half without increasing aggregate
compensation
Description
Keywords
Industry compensation, Industrial relocation, Emissions trading, Permit allocation, EU ETS, Firm data
Bibliographic citation
Martin, R., de Preux, L.B., y Wagner, U.J., "Industry Compensation Under Relocation Risk: A Firm-level Analysis of the EU Emissions Trading Scheme", American Economic Review, 2014, v. 104, n. 8, pp. 2482-2508