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Empirica

, Volume 39, Issue 2, pp 233–260 | Cite as

The effectiveness of anti-leakage policies in the European Union: results for Austria

  • Birgit Bednar-Friedl
  • Veronika Kulmer
  • Thomas SchinkoEmail author
Original Paper

Abstract

With the third trading period of the EU emissions trading scheme (EU ETS) starting in 2013, the system of allocating emission allowances will significantly change: In contrast to the previous two trading periods, auctioning of the allowances should now be the rule rather than the exception. Accompanying this policy change, concerns over competitiveness of energy intensive, trade exposed sectors as well as over limited environmental effectiveness via the channel of carbon leakage, have regained prominence. In this paper, we thus explore the impacts of potential EU policies to counter losses in international competitiveness and carbon leakage from the perspective of Austria. Based on numerical simulations with a computable general equilibrium model, we evaluate three policy options: an input subsidy for carbon allowances (thus reflecting the planned partially free allocation mechanism in the third EU ETS phase), a subsidy for domestic production, and an export rebate based on sectoral CO2 costs. Our results show that each policy has the potential to support domestic production in exposed sectors relative to a full auctioning scenario and thus increase competitiveness. However, none is imperatively effective at reducing Austria’s net carbon emissions: while the carbon trade balance is improved and hence leakage declines, the tradability of emission permits within the EU ETS allows CO2 emissions from Austria’s ETS output to increase. A cost benefit analysis indicates that the two policies promoting domestic output and exports are more cost effective than the CO2 input subsidy.

Keywords

Emissions trading International competitiveness Carbon leakage Anti-leakage policy Grandfathering Computable general equilibrium 

JEL Classification

Q54 Q56 H23 C68 

Notes

Acknowledgments

We thank two anonymous referees for their very helpful comments during the revision of the paper. This research was funded by the Austrian Climate and Energy Fund, carried out within the research programme “New Energies 2020” and by the Austrian Federal Ministry of Economy, Family and Youth as part of the Federal Government’s Internationalisation Drive (Research Center International Economics, FIW).

Supplementary material

10663_2012_9186_MOESM1_ESM.pdf (250 kb)
Supplementary material 1 (PDF 251 kb)

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Copyright information

© Springer Science+Business Media New York 2012

Authors and Affiliations

  • Birgit Bednar-Friedl
    • 1
    • 2
  • Veronika Kulmer
    • 1
    • 2
  • Thomas Schinko
    • 1
    • 2
    Email author
  1. 1.Wegener Center for Climate and Global ChangeUniversity of GrazGrazAustria
  2. 2.Department of EconomicsUniversity of GrazGrazAustria

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