Ulrich J. Wagner

The Design of Stable International Environmental Agreements: Economic Theory and Political Economy

International environmental agreements typically strive for the solution of a common property resource dilemma. Since the sovereignty of states precludes external enforcement, international environmental agreements must be self-enforcing. Game theoretical models explain why rewards and punishments imposed through the environmental externality generally fail to enforce full cooperation. Therefore, environmental treaties incorporate provisions that enhance the incentives for participation such as transfers, sanctions and linkage to other negotiation topics in international politics. Moreover, interaction with markets and governments as well as the rules and procedures adopted in the negotiation process influence the design and the effectiveness of an international environmental agreement.

Industry compensation under relocation risk: a firm-level analysis of the EU Emissions Trading Scheme

When regulated firms are offered compensation to prevent them from relocating, efficiency requires that payments be distributed across firms so as to equalize marginal relocation probabilities, weighted by the damage caused by relocation. We formalize this fundamental economic logic and apply it to analyzing compensation rules proposed under the EU Emissions Trading Scheme, where emission permits are allocated free of charge to carbon intensive and trade exposed industries. We show that this practice results in substantial overcompensation for given carbon leakage risk. Efficient permit allocation reduces the aggregate risk of job loss by more than half without increasing aggregate compensation.

The Impact of a Carbon Tax on Manufacturing: Evidence from Microdata

We estimate the impact of a carbon tax on manufacturing plants using panel data from the UK production census. Our identification strategy builds on the comparison of outcomes between plants subject to the full tax and plants that paid only 20% of the tax. Exploiting exogenous variation in eligibility for the tax discount, we find that the carbon tax had a strong negative impact on energy intensity and electricity use. There is no evidence of an adverse impact on employment, revenue or plant exit.

The Impact of the European Union Emissions Trading Scheme on Regulated Firms: What Is the Evidence after Ten Years?

This article reviews the recent literature on ex post evaluation of the impacts of the European Union (EU) Emissions Trading Scheme (ETS) on regulated firms in the industrial and power sectors. We summarize the findings from original research papers concerning three broadly defined impacts: carbon dioxide emissions, economic performance and competitiveness, and innovation. We conclude by highlighting gaps in the current literature and suggesting priorities for future research on this landmark policy. ( JEL: Q52, Q54, Q58)

The Impact of Carbon Trading on Industry: Evidence from German Manufacturing Firms

We estimate the causal impact of the EU Emissions Trading Scheme on manufacturing firms using comprehensive panel data from the German production census. Semiparametric matching estimators yield robust evidence that the policy caused treated firms to abate onefifth of their CO2 emissions between 2007 and 2010 relative to non-treated firms. This reduction was achieved predominantly by improving energy efficiency and by curbing the consumption of natural gas and petroleum products, but not electricity use. We find no evidence that emissions trading lowered employment, turnover or exports of treated firms.

Energy Use Patterns in German Industry: Evidence from Plant-Level Data

This paper analyzes energy use and CO2 emissions of more than 78 000 German industrial plants between 1995 and 2006. It is the first study to exploit exceptionally rich energy data that were recently matched to official micro datasets. We document that both energy use and intensity are highly dispersed across plants. When isolating the between-sector variation in energy intensity, there is a strong positive correlation with energy use, CO2 emissions and emission intensity. Yet there is no evidence that the scale of an industry determines its energy intensity. The dispersion of energy use across plants of a given sector, normalized by the median, is positively correlated with that of gross output, but not with the median energy use. Similarly, there is no evidence that the median energy intensity is correlated with the within- sector dispersion of energy intensity or with that of CO2 emissions. Looking at the fuel mix across sectors, we find that more energy intensive industries rely more on fuels other than electricity, although the variability among plants in those industries is extremely high. We also demonstrate that average fuel shares are sensitive to the skewness of the underlying distribution and recommend the use of median fuel shares for better representativeness.

The Impact of the EU ETS on Regulated Firms: What is the Evidence after Nine Years?

This article reviews the recent literature on ex-post evaluation of the impacts of the European Union Emissions Trading Scheme (EU ETS)on regulated firms in the industrial and power sectors. We summarize the findings from original research papers concerning three broadly defined impacts: CO2 emissions, economic performance and competitiveness, and innovation. We conclude by highlighting gaps in the current literature and suggesting priorities for future research on this landmark policy.

Trading Behavior in the EU Emissions Trading Scheme

Based on interviews with 429 manufacturing firms in six European countries, this study explores the rationality of trading behavior in the European Union Emissions Trading Scheme (EU ETS). We find that banking from one year to the next is used by most firms. Equally, a large majority of installations that are part of larger firms, manage permits within their own installation despite having the option to pool within firms. About 30% of firms do not appreciate the market created by the EU ETS; i.e. they do not consider carbon allowances as a financial asset that could provide profit opportunities. Also, the majority of EU ETS participants in our sample does not trade on the EU allowance market. Finally, we show that some firms do not make their allowances available despite possessing an excess supply: on average firms start to sell only if they have an excess supply of around 5,000 allowances. However, the total number of excess allowances held by firms below the trading threshold is rather small, at less than 10% of all excess allowances.

Estimating Strategic Models of International Treaty Formation

This paper empirically analyzes strategic complementarities in the ratification of the Montreal Protocol, a global environmental agreement that controls emissions of ozonedepleting substances. I model treaty ratification as a dynamic game of public good provision played among national governments. Strategic complementarity accelerates treaty ratification and can induce clusters of countries to ratify on the same day. This prediction is exploited to identify strategic complementarity in a structural econometric model. I find robust evidence of strategic complementarity in the ratification process. Using data on membership in pre-existing international agreements and on emissions of ozone-depleting substances, I show that concern about reputation and a preference for equity are empirically relevant sources of strategic complementarity. Counterfactual analysis reveals that these factors account for a reduction in the average ratification time by 16 and 86 weeks, respectively. In contrast, no such effect is found when using data on bilateral trade flows.This paper develops an empirical framework for analyzing the timing of international treaties. A treaty is modeled as a dynamic game among governments that decide on participation in every period. The net benefit of treaty membership increases over time. Spillovers among members and non members accelerate or delay treaty formation by transforming participation into a strategic complement or substitute, respectively. The predictions of the model inform the estimation of the structural parameters, based on a cross section of treaty ratification dates. With this approach, I estimate the sign and magnitude of strategic interaction in the ratification of the Montreal Protocol, in the formation of Europes preferential trade agreements, and in the growth of Germanys network of bilateral investment treaties. Through a series of counterfactual experiments, I explore different mechanisms that give rise to strategic interaction in the formation of these treaties.