Firm Competitiveness and the European Union Emissions Trading Scheme

31 Pages Posted: 28 Oct 2012

See all articles by H. Ron Chan

H. Ron Chan

University of Maryland

Shanjun Li

Cornell University - School of Applied Economics and Management

Fan Zhang

World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: October 26, 2012

Abstract

The European Union Emissions Trading Scheme is the first international cap-and-trade program for CO2 and the largest carbon pricing regime in the world. A principle concern over the Emissions Trading Scheme is the potential impact on the competitiveness of industry. Using a panel of 5,873 firms in 10 European countries during 2001-2009, this paper seeks to assess the impact of the carbon regulation on three variables through which the effects on firm competitiveness may manifest - unit material costs, employment and revenue. Our analysis focuses on three most polluting industries covered under the program- power, cement, and iron and steel. Empirical results indicate that the emissions trading program had different impacts across these three sectors. While no impacts are found on any of the three variables in cement and iron and steel industries, our analysis suggests a positive effect on both material costs and revenue: the effect on material costs likely reflects fuel-switching to reduce CO2 emissions while that on revenue may partly due to cost pass-through to consumers in a market less exposed to competition outside EU. Overall our findings do not substantiate concerns over carbon leakage, job loss and industry competitiveness at least during the study period.

Keywords: Cap and trade, EU emissions trading scheme, firm competitiveness

JEL Classification: N6

Suggested Citation

Chan, Hei Sing and Li, Shanjun and Zhang, Fan, Firm Competitiveness and the European Union Emissions Trading Scheme (October 26, 2012). Available at SSRN: https://ssrn.com/abstract=2167298 or http://dx.doi.org/10.2139/ssrn.2167298

Hei Sing Chan

University of Maryland ( email )

Department of Economics
3114 Tydings Hall
College Park, MD 20742
United States

Shanjun Li (Contact Author)

Cornell University - School of Applied Economics and Management ( email )

405 Warren Hall
Ithaca, NY 14853
United States

Fan Zhang

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

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