scholarly journals Industry Compensation Under Relocation Risk: A Firm-Level Analysis of the EU Emissions Trading Scheme

2013 ◽  
Author(s):  
Ralf Martin ◽  
Mirabelle Muûls ◽  
Laure de Preux ◽  
Ulrich Wagner
Keyword(s):  
Emissions Trading ◽  
Firm Level ◽  
Emissions Trading Scheme ◽  
Trading Scheme ◽  
Level Analysis ◽  
Eu Emissions Trading Scheme ◽  
The Eu

scholarly journals Industry Compensation under Relocation Risk: A Firm-Level Analysis of the EU Emissions Trading Scheme

2014 ◽  
Vol 104 (8) ◽  
pp. 2482-2508 ◽  
Author(s):  
Ralf Martin ◽  
Mirabelle Muûls ◽  
Laure B. de Preux ◽  
Ulrich J. Wagner
Keyword(s):  
Emissions Trading ◽  
Firm Level ◽  
Permit Allocation ◽  
Aggregate Risk ◽  
Regulated Firms ◽  
Emissions Trading Scheme ◽  
Trading Scheme ◽  
Level Analysis ◽  
Eu Emissions Trading Scheme ◽  
The Eu

When regulated firms are offered compensation to prevent them from relocating, efficiency requires that payments be distributed across firms so as to equalize marginal relocation probabilities, weighted by the damage caused by relocation. We formalize this fundamental economic logic and apply it to analyzing compensation rules proposed under the EU Emissions Trading Scheme, where emission permits are allocated free of charge to carbon-intensive and trade-exposed industries. We show that this practice results in substantial overcompensation for given carbon leakage risk. Efficient permit allocation reduces the aggregate risk of job loss by more than half without increasing aggregate compensation. (JEL H23, Q52, Q53, Q54, Q58)

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