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A carbon horse race: abatement subsidies vs. permit trading in Switzerland

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  • Beat Hintermann
  • Maja Žarković

Abstract

Swiss climate policy consists of three regulatory instruments for greenhouse gas emissions reduction: A CO$_{2}$2 levy, the Swiss Emissions Trading System (CH EHS) and an additional program for medium-sized plants that is labeled ‘nonEHS’ and consists of command-and-control elements plus a sizeable abatement subsidy. Our paper informs about this tripartite climate policy, which is unique in the international context. Second, we estimate the differential impact of the CH EHS and the nonEHS program on plants' emissions. Our empirical strategy exploits a policy change in 2013 that instituted a mandatory emissions trading system for a subset of previously regulated plants. We find that the nonEHS outperforms the CH EHS for a minority of plants, but that on average, the two programs result in similar abatement efforts despite very different financial incentives. Plants that previously engaged in abatement efforts continue to do so even after the financial incentives were reduced by an order of magnitude.Key policy insights We find similar pollution abatement for plants regulated by an emissions trading system relative to plants receiving an abatement subsidy in SwitzerlandThis is surprising given that the allowance price in the CH EHS is an order of magnitude lower than the abatement subsidyEmissions reductions in the ETS are especially pronounced for large plants, and for plants that had engaged in significant abatement in the past

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  • Beat Hintermann & Maja Žarković, 2021. "A carbon horse race: abatement subsidies vs. permit trading in Switzerland," Climate Policy, Taylor & Francis Journals, vol. 21(3), pages 290-306, March.
    • Handle: RePEc:taf:tcpoxx:v:21:y:2021:i:3:p:290-306
    DOI: 10.1080/14693062.2020.1846485
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    1. Beat Hintermann & Marc Gronwald, 2019. "Linking with Uncertainty: The Relationship Between EU ETS Pollution Permits and Kyoto Offsets," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(2), pages 761-784, October.
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    1. Beat Hintermann & Maja Zarkovic, 2020. "Carbon Pricing in Switzerland: A Fusion of Taxes, Command-and-Control, and Permit Markets," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 18(01), pages 35-41, April.

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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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