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This paper reviews the empirical literature analysing the effects of the EU Emissions Trading System (EU ETS) on low-carbon technological change. The emerging evidence is assessed, with references to both relevant economic concepts and the evolving regulation of the EU ETS through time. The two most robust indications of the literature are: a) the EU ETS appears to have been more effective in stimulating innovation of low-carbon technologies rather than their adoption; and b) free allocation (grandfathering) tended to hamper low-carbon investments in Phases I (2005)(2006)(2007) and II (2008)(2009)(2010)(2011)(2012). However, a complete general picture of the impact of the EU ETS on low-carbon technological change is missing. The main gap regards the lack of empirical evidence for Phase III (2013III ( -2020. Especially econometric studies are few, due to the lack of suitable databases accessible to researchers -a problem that the relevant public authorities are urged to address. Thanks to the recent reforms of the EU ETS, the incentives for innovation and adoption of low-carbon technologies are probably stronger today than ever before.
This paper carefully surveys the econometric literature that tests for competitiveness effects and related carbon leakage caused by the EU Emissions Trading System (EU ETS). The results of this literature tell us that to date there is no evidence of the EU ETS having had widespread negative or positive effects on the competitiveness of regulated firms, nor is there evidence of significant carbon leakage. However, the paper also identifies three important caveats to this general conclusion. Firstly, the evidence we have still largely refers to the first two trading periods, namely Phases I (2005–2007) and II (2008–2012). Secondly, some heterogeneity of estimated effects is observed, but patterns, notably sectoral patterns, hardly emerge. Thirdly, very little explored is whether the EU ETS has had long‐term effects on the economy via investment leakage or firm dynamics. Further empirical studies investigating these long‐term effects are particularly desirable.
In this paper we contribute new results on the different consumers' reaction to tax or price changes. We separately compute the compensated gasoline retail price elasticity and the gasoline tax elasticity and show that consumers overreact to taxes as compared to price variations. A novel element in our analysis is that we compare reactions to tax-inclusive retail prices to reactions to information on excise taxes that is made available to consumers. We estimate a complete system of demand for the U.S. population of households using quarterly data from the Consumer Expenditure Survey from 2007 to 2009. Relying on a complete system of demands rather than on single equations avoids imposing an implausible separability restriction, thus allowing estimation of accurate elasticities that take behavioral responses into account, i.e. that account for the way in which consumers reallocate their expenditure on a bundle of goods after a price/tax change in one of the goods. Our analysis shows that the reaction to a gasoline tax change is, on average, about 20% stronger than the reaction to a corresponding price change. We discuss the implications of our findings for the design of energy policies.
Poterba (1991a) has much influenced the literature on the distributional effects of carbon pricing. Poterba argues that the incidence of energy/environmental taxes across households is better appreciated if the relative tax burdens are measured against total expenditure, interpreted as a proxy for lifetime income, instead of annual income. This way, however, since the distribution of total expenditure is structurally more uniform, the incidence of energy price increases is always less regressive than when annual income is used. This outcome is often taken to lessen the relevance of equity concerns regarding carbon pricing. Almost twenty-five years after Poterba (1991a), Piketty (2014) revived the idea that wealth is a dimension of economic welfare constituting an increasingly important source of inequality. We show that omitting wealth in measuring ability to pay means underestimating the regressivity of carbon pricing and its inequity towards younger people. Using household-level data and statistical matching, we revisit Poterba's application and compare the distributional incidence of the US gasoline tax for different measures of ability to pay: total expenditure, income and wealth-adjusted income. Regressivity is not a reason to forgo carbon pricing as a cost-effective approach to climate mitigation, but calls for consideration and compensation of the distributional effects.
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