A Spatial Competitive Analysis: The Carbon Leakage Effect on the Cement Industry Under the European Emissions Trading Scheme

47 Pages Posted: 21 Feb 2013

See all articles by Elisabetta Allevi

Elisabetta Allevi

University of Brescia

Giorgia Oggioni

University of Brescia

Rossana Riccardi

University of Brescia

Marco Rocco

Bank of Italy

Date Written: January 30, 2013

Abstract

The European Emissions Trading Scheme (ETS) is a cap and trade system to curb CO2 emissions. It has caused both direct costs (CO2 allowances) and indirect costs (higher electricity prices) to energy-intensive industries. Moreover, as there is no global CO2 agreement, the ETS could distort the European economy, prompting energy-intensive industries to relocate production to unregulated countries: the “carbon leakage” effect. This paper investigates the impact of ETS on the cement industry, focusing on Italy, the second European producer, analyzing a Cournot oligopolistic partial equilibrium model with a detailed technological representation of the market. Simulation results show that the European and Italian cement markets are subject to carbon leakage, especially where carbon regulation is more stringent and where plants are located near the seacoast. Further, transportation costs - particularly high in the cement sector - significantly affect the rate of carbon leakage.

Keywords: carbon leakage, cement sector, ETS, generalized Nash game

JEL Classification: C60, D43, D58, C61, Q50

Suggested Citation

Allevi, Elisabetta and Oggioni, Giorgia and Riccardi, Rossana and Rocco, Marco, A Spatial Competitive Analysis: The Carbon Leakage Effect on the Cement Industry Under the European Emissions Trading Scheme (January 30, 2013). Bank of Italy Temi di Discussione (Working Paper) No. 899. Available at SSRN: https://ssrn.com/abstract=2221883 or http://dx.doi.org/10.2139/ssrn.2221883

Elisabetta Allevi

University of Brescia ( email )

Contrada S. Chiara 50
Brescia, BS 25122
Italy

Giorgia Oggioni

University of Brescia ( email )

Contrada S. Chiara 50
Brescia, BS 25122
Italy

Rossana Riccardi

University of Brescia ( email )

Piazza del Mercato, 15
25122 Brescia
Italy

Marco Rocco (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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