Carbon leakage: Grandfathering as an incentive device to avert firm relocation

Emission allowances are sometimes distributed for free in an early phase of a cap-and-trade scheme to reduce adverse effects on the profitability of firms. This paper investigates whether grandfathering can also be used to avert the relocation of firms to countries with lower carbon prices. We show...

Full description

Saved in:
Bibliographic Details
Published inJournal of environmental economics and management Vol. 67; no. 2; pp. 209 - 223
Main Authors Schmidt, Robert C., Heitzig, Jobst
Format Journal Article
LanguageEnglish
Published New York Elsevier Inc 01.03.2014
Elsevier Science Publishing Company, Inc
Subjects
Abatement capital
Carbon
Clean technology
Emissions trading
Lock-in effect
Low-carbon technology
Profitability
Relocation of industry
Studies
Tax incentives
Unilateral climate policy
Lock-in effect
Unilateral climate policy
Low-carbon technology
Abatement capital
Emissions trading
Online AccessGet full text

Cover

More Information
Summary:Emission allowances are sometimes distributed for free in an early phase of a cap-and-trade scheme to reduce adverse effects on the profitability of firms. This paper investigates whether grandfathering can also be used to avert the relocation of firms to countries with lower carbon prices. We show that under certain conditions, relocation can be averted in the long run, even if the grandfathering scheme is phased out over time and immediate relocation is profitable in its absence. This requires that the permit price triggers sufficient investments into low-carbon technologies or abatement capital that create a lock-in effect which makes relocation unprofitable.
Bibliography:ObjectType-Article-1
SourceType-Scholarly Journals-1
ObjectType-Feature-2
content type line 23
ISSN:0095-0696
1096-0449
DOI:10.1016/j.jeem.2013.12.004