Pollution Permit Market and International Trade-Exposed Sector: Differentiated Allocations versus Border Adjustment

To limit the loss of competitiveness when domestic firms are subject to stronger regulation than international competitors, a cap-and-trade policy can be associated either with partial grandfathering or with border adjustment. We compare the two policies from a domestic social-welfare point of view...

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Bibliographic Details
Published inJournal of institutional and theoretical economics Vol. 176; no. 3; pp. 473 - 495
Main Authors Naegelen, Florence, Mougeot, Michel
Format Journal Article
LanguageEnglish
Published Tübingen Mohr Siebeck 01.01.2020
Subjects
Adjustment
Auctions
Borders
Carbon
Climate policy
Competitiveness
Competitors
Domestic markets
Economic theory
Economics and Finance
Emissions trading
Environmental policy
Equilibrium
Humanities and Social Sciences
International trade
Market prices
Opportunity costs
Pollution
Power
Profits
Regulation
Society
Subsidies
Trade policy
Welfare
Windfall profits
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Summary:To limit the loss of competitiveness when domestic firms are subject to stronger regulation than international competitors, a cap-and-trade policy can be associated either with partial grandfathering or with border adjustment. We compare the two policies from a domestic social-welfare point of view when distributional concerns matter. We exhibit the conditions under which these policies have to be implemented, and we show that exportside border adjustment welfare-dominates partial grandfathering. However, the former policy results in a higher profit in the export sector but both a lower consumer surplus and lower profits of domestic-market-oriented firms.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
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ISSN:0932-4569
1614-0559
DOI:10.1628/jite-2020-0031