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.
Item Type: | Paper |
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Keywords: | climate policy, emissions trading, grandfathering, leakage, cap-and-trade |
Faculties: | Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems Special Research Fields > Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems > C5 - Wettbewerbspolitik als Steuerung von Wettbewerbsprozessen |
Subjects: | 300 Social sciences > 330 Economics |
JEL Classification: | Q55, Q58, L51 |
URN: | urn:nbn:de:bvb:19-epub-13254-0 |
Language: | English |
Item ID: | 13254 |
Date Deposited: | 10. Jul 2012, 13:07 |
Last Modified: | 04. Nov 2020, 12:53 |