Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93867
Authors: 
Schmidt, Robert C.
Year of Publication: 
2010
Series/Report no.: 
SFB/TR 15 Discussion Paper 300
Abstract: 
Emission allowances are often distributed for free in an early phase of a cap-and-trade scheme (grandfathering) to reduce adverse effects on the profitability of firms. If the grandfathering scheme is phased out over time, firms may nevertheless relocate to countries with a lower carbon price once the competitive disadvantage of their home industry becomes sufficiently high. We show that this is not necessarily the case. A temporary grandfathering policy can be a sufficient instrument to avert relocation in the long run, even if immediate relocation would be profitable in the absence of grandfathering. A necessary condition for this is that the permit price triggers investments in low-carbon technologies or abatement capital.
Subjects: 
climate policy
emissions trading
grandfathering
leakage
cap-and-trade
JEL: 
Q55
Q58
L51
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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