The European Union’s Emission Trading System (EU ETS) is the main policy instrument to cut greenhouse gas emissions within the EU. This work specifically focusses on the labor market cost effects of the introduction of the EU ETS, separated by the individual effects for the three economic actors: firms, households, and the state. In the form of a literature analysis, the main results for these individual actors are recontrasted and the central research question of who wins and who loses under EU emissions trading is answered.
It could be found that households, in particular low-income groups, are the main losers of the system, since they substantially bear the higher production costs of firms. Firms, on the other hand, although being the direct emitters of greenhouse gases, are not significantly affected by the system through the creation of various compensation mechanisms. Therefore, this analysis classifies them as the winners of the system. Moreover, the state is also considered a winner of the EU ETS, as it directly receives the profits from the auctioning of emission rights. In turn, the redistribution mechanism it chooses largely determines the extent of losses and the costs borne by households.
Table of Contents
1 Introduction
2 Distributional Effects of Cap and Trade Systems on the Labor Market
2.1 Functioning of a Cap and Trade System
2.2 Distributional Effects of a Cap and Trade System
3 Practical Example: Introduction to the EU ETS
4 Literature Review
4.1 Effects on Firms
4.1.1 Context
4.1.2 Methods and Data Samples in the Literature
4.1.3 Evidence: Impact of EU ETS on Employment and Profitability
4.1.4 Critique
4.1.5 Discussion
4.2 Effects on Households
4.2.1 Context
4.2.2 Methods and Data Samples in the Literature
4.2.3 Evidence: Impact of EU ETS on Income and Wages
4.2.4 Critique
4.2.5 Discussion
4.3 Effects on State
4.3.1 Context
4.3.2 Methods and Data Samples in the Literature
4.3.3 Evidence: Impact of EU ETS on GDP
4.3.4 Critique
4.3.5 Discussion
4.4 Summary
5 Policy Implications for the EU ETS and the Labor Market
6 Conclusion
Research Objectives and Themes
The primary objective of this thesis is to analyze the labor market effects of the European Union’s Emissions Trading System (EU ETS) by evaluating the individual impacts on three key economic actors: firms, households, and the state. The central research question seeks to clarify who are the winners and who are the losers of the EU emissions trading scheme in relation to the economic costs they bear, thereby contributing to the broader debate on environmental policy and economic fairness.
- Analysis of the distributional effects of Cap and Trade systems on the labor market.
- Comprehensive literature review of theoretical and empirical studies regarding the EU ETS.
- Individual assessment of cost impacts on firms (competitiveness), households (income/wages), and the state (GDP).
- Evaluation of policy implications and future adjustments to enhance the efficiency and fairness of the EU ETS.
Auszug aus dem Buch
4.1.1 Context
A common procedure to assess the labor market effect of environmental regulations such as the introduction of the EU ETS on firms is the evaluation of changes in their competitiveness (Joltreau & Sommerfeld, 2018). However, the term is not uniformly defined – while Bristow (2005) refers to competitiveness as a firm’s or sector’s potential to withstand competition in a market, to grow and be productive, Berger (2008) understands competitiveness as a firm’s ability to increase market share or profits. Common to all views is that competitiveness enables companies to increase their market influence rather than being displaced by other competitors.
The introduction of a CATS, which Fullerton (2011) found to be associated with various distributive effects, has also significant implications for firms’ competitiveness. In particular, the loss in producer surplus and the rise in scarcity rents through grandfathering permits are found to have far-reaching effects on firms’ employment and profitability. These two measures significantly determine a company’s market influence (Dechezleprêtre & Sato, 2017). Table 2 illustrates the three downstream competitive effects that occur for regulated firms under the EU ETS, elaborated by Dechezleprêtre and Sato (2017). According to the authors, the first-order effect occurring after the introduction of an ETS, is a considerable increase in companies’ production costs depending on the price and the allocation method of allowances implemented. The authors differentiate between direct cost effects through increasing material costs and indirect cost effects through rising electricity and other input costs necessary for production. Without any counteracting activity of the firm, this first-order effect refers to the loss in producer surplus, identified in chapter 2.2, since firms’ production costs increase while the product price at which they are remunerated remains fixed in the short-run. In the medium and long-run this cost impact induces different responses of the firms as part of the second-order effect.
Summary of Chapters
1 Introduction: Provides the context for global climate change and the introduction of the Emissions Trading System (ETS) as a policy tool, outlining the focus on labor market effects for three economic actors.
2 Distributional Effects of Cap and Trade Systems on the Labor Market: Explains the theoretical functioning of Cap and Trade systems and introduces the distributional effects that inform the subsequent analysis.
3 Practical Example: Introduction to the EU ETS: Details the history, regulatory phases, and operational mechanisms of the EU ETS as the world's largest cap and trade system.
4 Literature Review: Conducts a comprehensive analysis of 51 academic studies, assessing the economic impacts on firms, households, and the state, including methodology and critique.
5 Policy Implications for the EU ETS and the Labor Market: Discusses necessary reforms for the EU ETS, such as full auctioning of allowances, improved revenue recycling, and support for green job transitions.
6 Conclusion: Synthesizes the findings of the analysis to categorize the economic actors into winners and losers, while suggesting directions for future research.
Keywords
Cap and Trade, CO2, Emissions Trading System, Labor Market, Firms, Households, State, Distributional Effects, Competitiveness, Income Distribution, GDP, Environmental Policy, Green Jobs, Revenue Recycling, EU ETS.
Frequently Asked Questions
What is the core focus of this Master's thesis?
The thesis focuses on analyzing the labor market cost effects resulting from the implementation of the European Union's Emissions Trading System (EU ETS).
Which three economic actors are examined in this study?
The study examines the economic effects on firms, households (HHs), and the state.
What is the primary research question?
The research aims to identify who are the winners and who are the losers of the EU ETS based on the economic costs each actor bears.
What research methodology is employed?
The work utilizes a comprehensive literature analysis, reviewing and contrasting 51 theoretical and empirical studies to synthesize results.
What is covered in the main part of the thesis?
The main part includes a theoretical foundation, a detailed look at the practical implementation of the EU ETS, and extensive literature reviews categorized by the economic actors and their specific economic variables.
Which keywords best characterize this work?
The work is characterized by terms such as Cap and Trade, Emissions Trading System, Labor Market, Distributional Effects, and Competitiveness.
Who are identified as the winners of the EU ETS?
Firms are classified as winners because they utilize compensation mechanisms and cost-pass-through to mitigate the impact. The state is also considered a winner as it receives revenues from allowance auctions.
Why are households considered the losers of the system?
Households, particularly low-income groups, are identified as the main losers because they bear the increased production costs passed on by firms through higher product prices.
What role does revenue recycling play for the state?
The state plays a crucial role as a supervisor; the redistribution mechanism it chooses—such as lump-sum rebates versus investments in climate projects—largely determines the extent of the economic burden borne by households.
- Quote paper
- Rowena Barner (Author), 2021, Who loses and who wins under Emission Trading Schemes? An analysis of Labor Market Effects under Cap and Trade Systems, Munich, GRIN Verlag, https://www.grin.com/document/1169817
