Skip to main content
Article thumbnail
Location of Repository

The impact of CO2 emissions trading on firm profits and market prices

By Robin Smale, Murray Hartley, Cameron Hepburn, John Ward and Michael Grubb

Abstract

The introduction of mandatory controls and a trading scheme covering approximately half of all carbon dioxide emissions across Europe has triggered a debate about the impact of emissions trading on the competitiveness of European industry. Economic theory suggests that, in many sectors, businesses will pass on costs to customers and make net profits due to the impact on product prices combined with the extensive free allocations of allowances. This study applies the Cournot representation of an oligopoly market to five energy-intensive sectors: cement, newsprint, steel, aluminium and petroleum. By populating the model with empirical data, the results are shown for three future emissions price scenarios. The results encompass the extent of cost pass-through to customers, changes in output, changes in UK market share, and changes in firm profits. The results suggest that most participating sectors would be expected to profit in general, although with a modest loss of market share in the case of steel and cement, and closure in the case of aluminium

Topics: GE Environmental Sciences, HB Economic Theory
Publisher: Earthscan
Year: 2006
DOI identifier: 10.1080/14693062.2006.9685587
OAI identifier: oai:eprints.lse.ac.uk:32960
Provided by: LSE Research Online
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • http://www.earthscan.co.uk/tab... (external link)
  • http://eprints.lse.ac.uk/32960... (external link)
  • Suggested articles


    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.