EU-Type Carbon Emissions Trade and the Distributional Impact of Overlapping Emissions Taxes

36 Pages Posted: 16 Mar 2009

See all articles by Thomas Eichner

Thomas Eichner

University of Siegen - School of Economic Disciplines

Rudiger Pethig

University of Siegen - School of Economic Disciplines; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: March 2009

Abstract

The European Union fulfills its emissions reductions commitments by means of an emissions trading scheme covering some part of each member state's economy and by national emissions control in the rest of their economies. The member states also levy energy/emissions taxes overlapping with the trading scheme. Restricting our focus on cost-effective policies, this paper investigates the distributive consequences of increasing the overlapping emissions tax that is uniform across countries. For quasi-linear utility functions and for a class of parametric utility and production functions emissions tax increases turn out to be exactly offset by permit price reductions. As a consequence permit-exporting [permit-importing] countries lose [gain] from an increase in the emissions tax. These results are not general, however. By means of a numerical example we show that export-import reversals and welfare reversals are possible.

Keywords: emissions taxes, emissions trading, international trade

JEL Classification: H21, H22, Q56

Suggested Citation

Eichner, Thomas and Pethig, Rudiger, EU-Type Carbon Emissions Trade and the Distributional Impact of Overlapping Emissions Taxes (March 2009). CESifo Working Paper Series No. 2579. Available at SSRN: https://ssrn.com/abstract=1360635

Thomas Eichner (Contact Author)

University of Siegen - School of Economic Disciplines ( email )

Hoelderlinstrasse 3
57068 Siegen
Germany

Rudiger Pethig

University of Siegen - School of Economic Disciplines ( email )

Hoelderlinstrasse 3
57068 Siegen
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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