Exposed Industries in the EU ETS: Modelling Company Decisions on Output and Capacity

摘要

The European Union Emissions Trading Scheme (EU ETS) was originally conceived as a cap-and-trade scheme, but has been revised to incorporate elements from performance standard rate trading where output is higher. Allowances are still handed out for free to energy-intensive industries exposed to international competition. Since 2013 the initial distribution of free allowances to companies is based on emission benchmarks and production capacity. A ‘Partial Cessation of Operations’ (PCO) rule, which requires a minimum use of capacity for receiving free allowances, has added to complexity. In this paper we examine how, in an international oligopolistic market for output of fuel-intensive companies, the change in rules impacts upon capacity and output of European industry.