Corrado Di Maria

Transaction costs for firms in the EU ETS: lessons from Ireland

Until now, there has been little empirical evidence that EU Emissions Trading Scheme (ETS) transaction costs are incurred at firm level. The transaction costs (internal costs, capital costs, consultancy and trading costs) incurred by Irish firms under the EU ETS during its pilot phase (2005–2007) were measured and analysed. Evidence for the sources of transaction costs, their magnitude and the distribution of costs shows that these were mainly administrative in nature. Considerable variation in costs was found due to economies of scale, as the costs per tonne of CO2 were lower for participants with larger allocations. For the largest firms—accounting for over half the emissions—average transaction costs were €0.05 per tonne. However, for small firms, average transaction costs were €2.02—over 18% of the current allowance price. This supports the concerns that transaction costs are excessive for smaller participants. The immediate policy implication is that additional attention will be needed to address different sizes of firms, number of installations per firm, and the size of the initial allocations.

Trade pessimists vs technology optimists : induced technical change and pollution havens

Abstract Our paper focuses on the role of endogenous technology and technology spillovers in explaining cross country differences in pollution and the pollution haven effect of international trade. In our North-South trade model, technology is endogenously developed by the North and imitated by the South. Environmental regulators choose national environmental policies by trading off the income gains and the disutility from a rise in pollution. Differences in environmental stringency are entirely driven by differences in investment opportunities and distortions that follow from the difference in intellectual property rights protection. We show that without goods trade and in the absence of technology subsidies, the North imposes more stringent environmental regulation than the South. When opening up to trade, the South experiences a rise in prices for pollution-intensive goods and tends to raise pollution as in a standard trade model. Induced technical change, however, may reverse this pollution haven effect.

Hicks meets Hotelling: the direction of technical change in capital-resource economies

We analyze a two-sector growth model with directed technical change where man-made capital and exhaustible resources are essential for production. The relative profitability of factor-specific innovations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that any balanced growth equilibrium features purely resource-augmenting technical change. This result is compatible with alternative specifications of preferences and innovation technologies, as it hinges on the interplay between productive efficiency in the final sector, and the Hotelling rule characterizing the efficient depletion path for the exhaustible resource. Our result provides sound micro-foundations for the broad class of models of exogenous/endogenous growth where resource-augmenting progress is required to sustain consumption in the long run, contradicting the view that these models are conceptually biased in favor of sustainability.

Absolute Abundance and Relative Scarcity: Announced Policy, Resource Extraction, and Carbon Emissions

We study the effectiveness of climate change policy in a model with multiple non-renewable resources that differ in their carbon content. We find that, when allowing some time between announcement and implementation of a cap on carbon dioxide emissions, emissions from non-renewable energy sources increase at the time of announcement. There are two channels behind this effect. First, since a binding constraint on emissions restricts energy use during some period of time, more must be extracted during other periods. Second, since low carbon energy sources are relatively more valuable when the policy is implemented, it is optimal to conserve them ahead of enforcement. This might induce a switch to high-carbon resources before the policy is implemented.

Technological Change and the EU ETS: The Case of Ireland

The European Union commenced the pilot phase of the European Union Emissions Trading System (EU ETS) in 2005 with the intent to enhance the adoption of existing low-carbon technologies and the development and of new ones by putting a price on CO 2 emissions. We survey Irish EU ETS firms to study the occurrence and determinants of CO 2 emissions friendly technological change during the pilot phase (2005-2007). Despite declining emissions prices and policy related uncertainty, 48% of responding Irish firms employed new machinery or equipment, 74% made process or behavioral changes, and 41% switched fuels to some degree that contributed to emissions reductions during the pilot phase. The effect of rising energy prices on these emissions and energy saving actions should not be overlooked. In general, we find that the EU ETS was effective in stimulating moderate technological change and also raising awareness about emissions reduction possibilities.

Carbon Leakage Revisited: Unilateral Climate Policy with Directed Technical Change

The increase in carbon dioxide emissions by some countries in reaction to an emission reduction by countries with climate policy (carbon leakage) is seen as a serious threat to unilateral climate policy. Using a two-country model where only one of the countries enforces an exogenous cap on emissions, this paper analyzes the effect of technical change that can be directed towards the clean or dirty input, on carbon leakage. We show that, as long as technical change cannot be directed, there will always be carbon leakage through the standard terms-of-trade effect. However, once we allow for directed technical change, a counterbalancing induced technology effect arises and carbon leakage will generally be lower. Moreover, we show that when the relative demand for energy is sufficiently elastic, carbon leakage may be negative: the technology effect induces the unconstrained region to voluntarily reduce its own emissions.

Assessing the Transaction Costs of Firms in the EU ETS: Lessons form Ireland

This paper measures the transaction costs incurred by Irish firms under the European Union’s CO2 Emissions Trading Scheme (EU ETS) during its pilot phase (2005 - 2007). Our analysis provides evidence that such costs were mainly administrative in nature. We emphasize the existence of sizeable economies of scale, as the costs per tonne of CO2 were lower for participants with larger allocations. Trading costs were not significant and, hence, not trade inhibitive. Other factors, self-sufficiency in compliance and low allowance prices, played a major role in the decision whether to trade or not during this phase.

Hiring incentives and labour force participation in Italy

A long-standing economic tradition maintains that labour supply reacts to market tightness; its sensitivity to job quality has received less attention. If firms hire workers with both temporary and open-end contracts, does participation increase when more permanent jobs are available? We investigate this relationship within a policy evaluation framework; in particular, we examine how labour supply reacted in Italy to a recent subsidy in favour of open-end contracts. This subsidy increased labour force participation by 1.4% in 2001 and 2.1% in 2002. This increase was concentrated on males aged 35-54, with a low or at most a secondary schooling level, and might be due to the choice to leave undegraound economy.

Brain drain and distance to frontier

In this paper we investigate the effects of emigration on growth in developing countries.We present a model in which productivity increases either through imitation or innovation, and both activities use the same types of human capital as inputs, albeit with different intensities.Heterogenous agents accumulate human capital responding to economic incentives, and might be able to emigrate.When no migration of skilled workers is allowed, backwards countries converge to the technological frontier.The possibility of migration, however, distorts the optimal accumulation of human capital and slows down, or even hinders, development.This effect is stronger the farther away a developing country is from the technological frontier.Thus, technologically backward countries are more likely to suffer from a negative brain drain effect.Among these countries, those which implement appropriate policies, subsidizing the accumulation of the most useful type of human capital, improve their growth performance.They converge faster, and possibly to a higher productivity level than countries where such policies are neglected.