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Emissions Trading under a Relative Cap: An alternative for conventional emissions trading that would prevent carbon leakage and protect exposed sectors of industry?

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  • Kuik, Onno
  • Gerlagh, Reyer

Abstract

Given potentially negative impacts of Kyoto-type climate change policies on the competitiveness of Dutch exposed sectors and the possibility of international carbon leakage, is there a possibility to do better? This paper examines the option of a relative, or rate-based emissions ceiling for exposed sectors in the Netherlands. An analysis of Performance Standard Rate (PSR) emissions trading for the Netherlands was carried out with the GTAP-E model that was extended to simulate PSR trading and variable returns to scale in production. The model simulations suggest that PSR emissions trading would reduce carbon leakage and loss of competitiveness of exposed sectors, but that it would not improve welfare. This result is sensitive to assumptions on trade elasticities and returns to scale.

Suggested Citation

  • Kuik, Onno & Gerlagh, Reyer, 2005. "Emissions Trading under a Relative Cap: An alternative for conventional emissions trading that would prevent carbon leakage and protect exposed sectors of industry?," Conference papers 331375, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:331375
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    References listed on IDEAS

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    1. Gernot Klepper & Sonja Peterson, 2004. "The EU Emissions Trading Scheme. Allowance Prices, Trade Flows, Competitiveness Effects," Working Papers 2004.49, Fondazione Eni Enrico Mattei.
    2. Klepper, Gernot & Peterson, Sonja, 2004. "The EU emissions trading scheme allowance prices, trade flows and competitiveness effects," Open Access Publications from Kiel Institute for the World Economy 3270, Kiel Institute for the World Economy (IfW Kiel).
    3. Klepper, Gernot & Peterson, Sonja & Springer, Katrin, 2003. "DART97: a description of the multi-regional, multi-sectoral trade model for the analysis of climate policies," Kiel Working Papers 1149, Kiel Institute for the World Economy (IfW Kiel).
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