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EU-type carbon emissions trade and the distributional impact of overlapping emissions taxes

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Abstract

The European Union fulfills its emissions reductions commitments by means of an emissions trading scheme covering some part of each member state’s economy and by national emissions control in the rest of their economies. The member states also levy energy/emissions taxes overlapping with the trading scheme. Restricting our focus on cost-effective policies, this paper investigates the distributive consequences of increasing the overlapping emissions tax that is uniform across countries. For quasi-linear utility functions and for a class of parametric utility and production functions emissions tax increases turn out to be exactly offset by permit price reductions. As a consequence permit-exporting [permit-importing] countries lose [gain] from an increase in the emissions tax. These results are not general, however. By means of a numerical example we show that export-import reversals and welfare reversals are possible.

Suggested Citation

  • Thomas Eichner & Rüdiger Pethig, 2009. "EU-type carbon emissions trade and the distributional impact of overlapping emissions taxes," Volkswirtschaftliche Diskussionsbeiträge 134-09, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    • Handle: RePEc:sie:siegen:134-09
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    1. Steven Sorrell, 2003. "Carbon Trading in the Policy Mix," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(3), pages 420-437.
    2. Shiell, Leslie, 2003. "Equity and efficiency in international markets for pollution permits," Journal of Environmental Economics and Management, Elsevier, vol. 46(1), pages 38-51, July.
    3. Eichner, Thomas & Pethig, Rüdiger, 2009. "Efficient CO2 emissions control with emissions taxes and international emissions trading," European Economic Review, Elsevier, vol. 53(6), pages 625-635, August.
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    Cited by:

    1. Currier, Kevin M. & Rassouli-Currier, Susanne, 2018. "Producer incentives in electricity markets with green quotas and tradable certificates," Utilities Policy, Elsevier, vol. 55(C), pages 59-68.
    2. Robaina Alves, Margarita & Rodríguez, Miguel & Roseta-Palma, Catarina, 2011. "Sectoral and regional impacts of the European carbon market in Portugal," Energy Policy, Elsevier, vol. 39(5), pages 2528-2541, May.
    3. Currier, Kevin M., 2016. "Incentives for cost reduction and cost padding in electricity markets with overlapping “green” regulations," Utilities Policy, Elsevier, vol. 38(C), pages 72-75.
    4. Fei Zou & Yanju Zhou & Caihua Yuan, 2020. "The Impact of Retailers’ Low-Carbon Investment on the Supply Chain under Carbon Tax and Carbon Trading Policies," Sustainability, MDPI, vol. 12(9), pages 1-27, April.
    5. Yoshihiro Hamaguchi, 2024. "Whether to Abolish or Introduce Dual Regulation as Trade and Environmental Policy?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 32(1), pages 57-95, January.

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    More about this item

    Keywords

    emissions taxes; emissions trading; international trade;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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