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Windfall Profits Under Pollution Permits and Output-Based Allocation

Author

Listed:
  • Jean-Philippe Nicolaï

    (ETH Zurich)

  • Jorge Zamorano

    (Université Paris I Panthéon Sorbonne
    Universidad de Santiago de Chile)

Abstract

This paper analyzes the implementation of pollution permits. It focuses on the distributional impacts linked with the stringency of output-based allocation when two sectors are covered by the market for permits and the total cap is held constant. A new type of profit increase in sectors that are not exposed to international competition, when energy-intensive trade-exposed (EITE) sectors are granted output-based allocations, is demonstrated theoretically. The paper also illustrates a profit increase in the electricity sector in a possible fourth phase of the European Union Emission Trading Scheme, in which output-based allocation will be granted to EITE sectors, compared with the case in which all permits are auctioned.

Suggested Citation

  • Jean-Philippe Nicolaï & Jorge Zamorano, 2018. "Windfall Profits Under Pollution Permits and Output-Based Allocation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 69(4), pages 661-691, April.
    • Handle: RePEc:kap:enreec:v:69:y:2018:i:4:d:10.1007_s10640-016-0096-1
    DOI: 10.1007/s10640-016-0096-1
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    References listed on IDEAS

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    Cited by:

    1. Fraser, Alastair & Kuok, Jonathan Chiew Sheen & Leslie, Gordon W., 2023. "Climate reform and transitional industry assistance: Windfall profits for polluters?," Energy Economics, Elsevier, vol. 121(C).
    2. Hintermann, Beat & Zarkovic, Maja & Di Maria, Corrado & Wagner, Ulrich J., 2020. "The effect of climate policy on productivity and cost pass-through in the German manufacturing sector," Working papers 2020/11, Faculty of Business and Economics - University of Basel.
    3. Nicolaï, Jean-Philippe, 2019. "Emission reduction and profit-neutral permit allocations," Journal of Environmental Economics and Management, Elsevier, vol. 93(C), pages 239-253.

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    More about this item

    Keywords

    Tradable permits; Oligopoly markets; Output-based allocation; European Union Emission Trading Scheme (EU ETS);
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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