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Industry-Level Emission Trading in the EU

Industry-Level Emission Trading between
Power Producers in the EU

Christoph Bohringer*

Abstract

In this paper we investigate how restrictions for emission trading to the energy-intensive
power sector will affect the magnitude and distribution of abatement costs across EU
countries vis-à-vis a comprehensive EU emission trading regime. We find that emission
trading between European power sectors allows the harvest of a major part of the
efficiency gains provided by full trade as compared to strictly domestic action. However,
trade restrictions may create a more unequal distribution of abatement costs across member
states than is the case for a comprehensive trade regime. The reason for this is that
restricted permit trade enhances the secondary terms-of-trade benefits to EU member
countries with low marginal abatement costs at the expense of the other EU member states.

Key words: emission trading, computable general equilibrium

JEL classification: D58, Q43, Q58,

* Centre for European Economic Research (ZEW), P.O. Box 103443, D-68034 Mannheim,
Phone: +49 621 125 200, Fax: +49 621 1235 226, E-mail: [email protected]

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