Efficiency Losses from Overlapping Economic Instruments in European Carbon Emissions Regulation

20 Pages Posted: 18 Apr 2006 Last revised: 2 Dec 2013

See all articles by Christoph Böhringer

Christoph Böhringer

University of Oldenburg - Economic Policy; Centre for European Economic Research (ZEW)

Henrike Koschel

Center for European Economic Research (ZEW)

Ulf Moslener

Frankfurt School of Finance & Management gemeinnützige GmbH

Date Written: April 2006

Abstract

Energy markets and energy-intensive industries in all EU member states - especially in Germany - are subject to a diverse set of policies related to climate change. We analyse the potential efficiency losses from simultaneous application of emission taxes and emissions trading in qualitative and quantitative terms within a partial equilibrium framework for the EU. It turns out that those firms within the EU Emissions Trading Scheme (EU ETS) which at the same time are subject to domestic energy or carbon taxes will abate inefficiently much while other firms within the EU ETS will benefit from lower international emission permit prices. The same logic disproves the argument that additional national emission taxes will reduce inefficiencies in abatement supposed to be resulting from allowance (over-) allocation. In essence, unilateral emission taxes within the EU ETS are ecologically ineffective and subsidise net permit buyers. Thus, all firms that are subject to emissions trading and any CO2 emission taxes at the same time should be exempt from the latter. The foregone tax revenue could be generated by auctioning a small fraction of the permits instead. This would be cheaper for the emissions trading sectors as a whole and could be compatible even with the tight auctioning restrictions of the EU directive.

Keywords: emissions trading, emission taxes, National Allocation Plans

JEL Classification: D61, H21, H22, Q58

Suggested Citation

Bohringer, Christoph and Koschel, Henrike and Moslener, Ulf, Efficiency Losses from Overlapping Economic Instruments in European Carbon Emissions Regulation (April 2006). ZEW - Centre for European Economic Research Discussion Paper No. 06-018. Available at SSRN: https://ssrn.com/abstract=892543 or http://dx.doi.org/10.2139/ssrn.892543

Christoph Bohringer (Contact Author)

University of Oldenburg - Economic Policy ( email )

Centre for European Economic Research (ZEW) ( email )

D-68161 Mannheim
Germany
+49 6211235200 (Phone)
+49 6211235226 (Fax)

Henrike Koschel

Center for European Economic Research (ZEW) ( email )

P.O. Box 10 34 43
L 7,1 D-68161 Mannheim
Germany

Ulf Moslener

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

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