The Incidence of the European Union Emissions Trading System and the Role of Revenue Recycling: Empirical Evidence from Combined Industry- and Household-Level Data

31 Pages Posted: 1 Aug 2012

See all articles by Martin Beznoska

Martin Beznoska

German Institute for Economic Research (DIW Berlin)

Johanna Cludius

affiliation not provided to SSRN

Viktor Steiner

Free University of Berlin (FUB)

Date Written: July 1, 2012

Abstract

We calculate the expected incidence of the European Union Emissions Trading System (EU-ETS) using industry and household-level data. By combining data on direct CO2 emissions by production sector from the German Environmental Account with the German Input-Output Accounts, we calculate the CO2 intensity of each sector covered by the EU-ETS. We focus on the impact of price increases in the electricity sector, both directly in the form of higher electricity bills for consumers and indirectly through products that use electricity as an input to production. Taking into account behavioral effects derived from an estimated consumer-demand system, we provide incidence calculations on the basis of the German Income and Expenditure Survey for the year 2008 data updated to 2013. We confirm the ex-ante expected regressive effect, which is, however, both rather small in magnitude and can be offset and even more than offset by revenue recycling, in particular the reduction of social security contributions on labor income.

Keywords: European Union Emissions Trading System, tax incidence, revenue recycling, almost ideal demand system

JEL Classification: D12, H23, Q52

Suggested Citation

Beznoska, Martin and Cludius, Johanna and Steiner, Viktor, The Incidence of the European Union Emissions Trading System and the Role of Revenue Recycling: Empirical Evidence from Combined Industry- and Household-Level Data (July 1, 2012). DIW Berlin Discussion Paper No. 1227, Available at SSRN: https://ssrn.com/abstract=2121224 or http://dx.doi.org/10.2139/ssrn.2121224

Martin Beznoska (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Johanna Cludius

affiliation not provided to SSRN ( email )

Viktor Steiner

Free University of Berlin (FUB) ( email )

Van't-Hoff-Str. 8
Berlin, Berlin 14195
Germany

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