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861. Estimating Environmental Compliance Costs at the Installation Level

Working Papers n.861 - Ottobre 2021

Filippo Belloc

DEPS, USiena

Bouwe Dijkstra

University of Nottingham, School of Economics

Edilio Valentini

University of Chieti-Pescara, Department of Economic Studies

Abstract

We develop a new measure of installation-level environmental compliance costs under an Emissions Trading System (ETS) by estimating normalized demand curves of permits sector-by-sector. Our measure reflects installation-level compliance costs deviations within-sector and it is scaled by both the installation’s baseline output and the sector-specific abatement efficiency. An application to four sectors in Phase 3 of the EU ETS unveils a non-negligible within-sector variance and reveals that the installation-level dimension explains the largest part of it, while the country effect accounts for 7.7% to 11.4% of the total within-sector variance. This points to the installation-level dimension as mostly important when the impact of environmental regulations has to be assessed in practice.

Keywords

compliance costs, environmental regulation, abatement technology, EU ETS

Jel Codes

L50, L60, Q52, Q58