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Allocation Of Emission Allowances: Impacts On Technology Investments

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  • KNUT EINAR ROSENDAHL

    (School of Economics and Business, Norwegian University of Life Sciences, Norway)

  • HALVOR BRISEID STORRØSTEN

    (Research Department, Statistics Norway, P.O. Box 8131 Dep., 0033 Oslo, Norway)

Abstract

Allocation of allowances in an emission trading system (ETS) may affect firms' investments in new technologies. In this paper, we investigate how the incentives to invest depend on the regulator's expected response to these investments, assuming that allowances are allocated in proportion to output (output-based allocation (OBA)). If the regulator has commited to the allocation factor, OBA tends to stimulate investments in cleaner technologies, due to higher output and increased price of allowances. On the other hand, if each firm expects the regulator to tighten the allocation factor after observing its clean technology investment, the firms' incentives to invest are moderated. If strong, this last negative effect may dominate the former positive effect on investments. Finally, if allowances are given only to a subset of firms or sectors, then other firms regulated by the ETS will increase their technology investments if and only if their total emission payments increase.

Suggested Citation

  • Knut Einar Rosendahl & Halvor Briseid Storrøsten, 2015. "Allocation Of Emission Allowances: Impacts On Technology Investments," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 6(03), pages 1-22.
    • Handle: RePEc:wsi:ccexxx:v:06:y:2015:i:03:n:s2010007815500104
    DOI: 10.1142/S2010007815500104
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    References listed on IDEAS

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    1. Fischer, Carolyn & Fox, Alan K., 2009. "Combining Rebates with Carbon Taxes: Optimal Strategies for Coping with Emissions Leakage and Tax Interactions," RFF Working Paper Series dp-09-12, Resources for the Future.
    2. Boehringer Christoph & Fischer Carolyn & Rosendahl Knut Einar, 2010. "The Global Effects of Subglobal Climate Policies," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(2), pages 1-35, December.
    3. Cathrine Hagem & Bjart Holtsmark & Thomas Sterner, 2012. "Mechanism design for refunding emissions payment," Discussion Papers 705, Statistics Norway, Research Department.
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    Cited by:

    1. Marit Klemetsen & Knut Einar Rosendahl & Anja Lund Jakobsen, 2020. "The Impacts Of The Eu Ets On Norwegian Plants’ Environmental And Economic Performance," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 1-32, February.
    2. Teixidó, Jordi & Verde, Stefano F. & Nicolli, Francesco, 2019. "The impact of the EU Emissions Trading System on low-carbon technological change: The empirical evidence," Ecological Economics, Elsevier, vol. 164(C), pages 1-1.
    3. Shaofu Du & Jun Qian & Tianzhuo Liu & Li Hu, 2020. "Emission allowance allocation mechanism design: a low-carbon operations perspective," Annals of Operations Research, Springer, vol. 291(1), pages 247-280, August.

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    More about this item

    Keywords

    Emissions trading; allocation of allowances; technology investments; H21; Q58;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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