September 25, 2011

Output-Based Allocation of Emissions Permits for Mitigating the Leakage and Competitiveness Issues for the Japanese Economy

by Shiro Takeda, Toshi Arimura, Hanae Tamechika, Carolyn Fischer and Alan Fox

- This paper examines the effects of various allocation methods for granting emissions permits in the Japanese ETS on the economy and CO2 emissions using a multiregional and multisector computable general equilibrium model. Specifically, we apply the Fischer and Fox (2007) model to the Japanese economy to address carbon leakage and competitiveness issues. We compare auction schemes, grandfathering schemes, and output-based allocation (OBA) schemes. We further extend the model by examining a combination of auctions and OBA. Though the auction scheme is found to be the best in terms of macroeconomic impacts (welfare and GDP effects), the leakage rate is high and the harm to energy-intensive sectors can be significant.

Shiro Takeda, Toshi Arimura, Hanae Tamechika, Carolyn Fischer and Alan Fox (2011). "Output-Based Allocation of Emissions Permits for Mitigating the Leakage and Competitiveness Issues for the Japanese Economy." RFF Discussion Paper 11-40, Sept 2011.