Higher Price, Lower Costs? Minimum Prices in the EU Emissions Trading Scheme

CER-ETH - Center of Economic Research at ETH Zurich, Working paper 16/243

40 Pages Posted: 14 Apr 2016 Last revised: 8 Sep 2017

See all articles by Jan Abrell

Jan Abrell

ETH Zürich - Centre for Energy Policy and Economics (CEPE)

Sebastian Rausch

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich; Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change

Hidemichi Yonezawa

Statistics Norway

Multiple version iconThere are 2 versions of this paper

Date Written: September 2017

Abstract

This paper examines the efficiency and distributional impacts of introducing a price floor in an emissions trading system (ETS) when environmental regulation is partitioned. We theoretically characterize the conditions under which a price floor enhances welfare. Using a multi-country multi-sector numerical general equilibrium model of the European carbon market, we find that moderate minimum price levels in the EU ETS can reduce the costs of EU climate policy by up to thirty percent and yield outcomes close to uniform carbon pricing. Moreover, most of the EU Member States would gain. Our results are robust with respect to parametric uncertainty in production and consumption technologies.

Keywords: Emissions Trading, Price Floors, EU ETS, Partitioned Environmental Regulation, General Equilibrium

JEL Classification: H23, Q52, Q58, C68

Suggested Citation

Abrell, Jan and Rausch, Sebastian and Yonezawa, Hidemichi, Higher Price, Lower Costs? Minimum Prices in the EU Emissions Trading Scheme (September 2017). CER-ETH - Center of Economic Research at ETH Zurich, Working paper 16/243, Available at SSRN: https://ssrn.com/abstract=2764155 or http://dx.doi.org/10.2139/ssrn.2764155

Jan Abrell

ETH Zürich - Centre for Energy Policy and Economics (CEPE) ( email )

8092 Zurich
Switzerland

Sebastian Rausch (Contact Author)

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change ( email )

77 Massachusetts Ave, Bldg E40-474
Cambridge, MA 02139
United States

Hidemichi Yonezawa

Statistics Norway ( email )

N-0033 Oslo
Norway

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