Carbon leakage: Grandfathering as an incentive device to avert relocation

Schmidt, Robert C. (Januar 2010): Carbon leakage: Grandfathering as an incentive device to avert relocation. SFB/TR 15 Discussion Paper No. 300

Abstract

Emission allowances are often distributed for free in an early phase of a cap-and-trade scheme (grandfathering) to reduce adverse effects on the profitability of firms. If the grandfathering scheme is phased out over time, firms may nevertheless relocate to countries with a lower carbon price once the competitive disadvantage of their home industry becomes sufficiently high. We show that this is not necessarily the case. A temporary grandfathering policy can be a sufficient instrument to avert relocation in the long run, even if immediate relocation would be profitable in the absence of grandfathering. A necessary condition for this is that the permit price triggers investments in low-carbon technologies or abatement capital.

• Dokumententyp: Paper
• Keywords: climate policy, emissions trading, grandfathering, leakage, cap-and-trade
• Fakultät: Sonderforschungsbereiche > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems ; Sonderforschungsbereiche > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > C5 - Wettbewerbspolitik als Steuerung von Wettbewerbsprozessen
• Themengebiete: 300 Sozialwissenschaften > 330 Wirtschaft
• JEL Classification: Q55, Q58, L51
• Sprache: Englisch