Competitiveness Impacts in a World with Uneven Carbon Constraints: Examining the Implications of the EU Emissions Trading Scheme on Energy-Intensive Industries

Research Team:

  • Dr. Michael Hübler, ZEW – Leibniz Centre for European Economic Research Mannheim, Research Department Environmental and Resource Economics, Environmental Management
  • Dr. Oliver Schenker, ZEW – Leibniz Centre for European Economic Research Mannheim, Research Department Environmental and Resource Economics, Environmental Management
  • Carolyn Fischer, PhD, Resources for the Future (RFF), Washington
  • Prof. Dr. Andreas Löschel, ZEW – Leibniz Centre for European Economic Research Mannheim, Research Department Environmental and Resource Economics, Environmental Management
  • Richard D. Morgenstern, PhD, Resources for the Future (RFF), Washington

Project Description:

In a world with different levels of ambitions in climate actions, the stringent carbon commitments in the EU have given rise to multiple concerns, including the potentially adverse impacts on competitiveness of European enterprises. One way of answering the question on how energy-intensive sectors are affected in their ability to compete is offered by the public finance literature dealing with economic costs’ distribution of policy interventions. In the basic concept of sectoral incidence analysis, the degree to which climate policy imposes burdens on given industries is related to the question whether and to what extent (partly or fully) the burden of CO2 costs may be shifted (passed on) by industrial producers to another type of economic agents. Albeit these issues are very relevant in the context of the EU climate policy, the empirical evidence is lacking behind.

Against this background, the overall objective of the project is to reduce uncertainties regarding industry-distributional impacts of future climate change policy in the EU. Using highly disaggregated data and advanced time-series techniques, the project will estimate the ability of energy-intensive industries to pass-through additional costs induced by environmental regulation. The construction of a database with focus on energy-intensive sectors’ specific prices and costs for extensive country coverage represents an important intermediate step of the project. By combining empirical work on the pass-through potential with a numerical analysis within a general equilibrium set-up, this project will provide a more solid understanding of competitiveness implications of climate policies.

Duration: April 2012 - September 2013