Nach oben pdf The European Emissions Trading System (EU ETS): Ex-Post Analysis, the Market Stability Reserve and Options for a Comprehensive Reform

The European Emissions Trading System (EU ETS): Ex-Post Analysis, the Market Stability Reserve and Options for a Comprehensive Reform

The European Emissions Trading System (EU ETS): Ex-Post Analysis, the Market Stability Reserve and Options for a Comprehensive Reform

met and emissions actually declined in recent years, ensuring the environmental effectiveness of the scheme. However, the low price may affect the long-term cost-effectiveness of the instrument by reducing the incentive for investment and deployment of low carbon technologies. No significant increase in the allowance price is expected before 2020, and probably not beyond, without reform. While the reasons for the price decline are controversial, empirical analysis shows that only a small portion of price fluctuations can be explained by factors such as the economic crisis, renewable deployment or international offsets. Therefore, it is likely that political factors and regulatory uncertainty have played a key role in the price decline. As a consequence, any reform of the EU ETS has to deliver a mechanism that reduces such uncertainty and stabilizes expectations of market participants. The Market Stability Reserve proposed by the EU Commission is unlikely to address the current problem of price uncertainty and insufficient dynamic efficiency. The key element of the alternative reform proposal described in this paper is to set a price collar in the EU ETS with lower and upper boundaries. This is likely to reinforce the long-term credibility and reliability of the price signal. In addition, a price for GHG emissions not covered by the EU ETS has to be set. If additional market failures prevent the market from functioning efficiently, specific policy instruments related to innovation and technology diffusion should be implemented in addition to carbon pricing. Carbon leakage could be addressed through tailor-made trade policies. In parallel, increasing the coalition of countries included in the carbon pricing should remain a priority. This reform package would bring the EU ETS back to life, while avoiding a relapse into potentially costly and inefficient national climate and energy policies.
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The Legal and Economic Case for an Auction Reserve Price in the EU Emissions Trading System

The Legal and Economic Case for an Auction Reserve Price in the EU Emissions Trading System

Abstract When it was launched in 2005, the European Union emissions trading system (EU ETS) was projected to have prices of around €30/ton CO2 and to be a cornerstone of the EU’s climate policy. The reality was a cascade of falling prices, a ballooning privately held emissions bank, and a decade of low prices providing inadequate incentive to drive investment in the technologies and innovation necessary to achieve long-term climate goals. The European Commission responded with administrative measures, including postponing the introduction of allowances (backloading) and using a quantity-based criterion for regulating future allowance sales (the market stability reserve); although prices are beginning to recover, it is far from clear whether these measures will adequately support the price into the future. In the meantime, governments have been turning away from carbon pricing and adopting overlapping regulatory measures that reinforce low prices and further undermine the confidence in market-based approaches to addressing climate change. The solution in other carbon markets has been the introduction of a reserve price that would set a minimum price in allowance auctions. Opponents of an auction reserve price in the EU ETS have expressed concern that a minimum auction price would interfere with economic operations in the market or would be tantamount to a tax, which would trigger a decision rule requiring unanimity among EU Member States. This Article reviews the economic and legal arguments for and against an auction reserve price. Our economic analysis concludes that an auction reserve price is necessary to accommodate overlapping policies and for the allowance market to operate efficiently. Our legal analysis concludes that an auction reserve price is not a “provision primarily of a fiscal nature,” nor would it “significantly affect a Member State’s choice between different energy sources.” We describe pathways through which a reserve price could be introduced.
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A policy analysis of the EU Emissions Trading System and its crisis

A policy analysis of the EU Emissions Trading System and its crisis

Furthermore, they emphasised the importance of unrestricted access to the credits from the CDM and JI “as they are fundamental to achieving the EU‟s emission reduction goals and engaging developing countries in a global emissions reduction process” (Eurelectric 2007: 7). Contrary to the power producing sector, the energy-intensive industries are not represented by one organisation, but submitted a common position paper through the Key Stakeholders Alliance for ETS Review as well as individual ones (Skjærseth and Wettestad 2010a: 112; European Commission 2016e). In general, they were rather averse to an EU ETS reform. In their joint position paper they requested policy makers remove distortions of the free market and create „regulatory stability‟ (Alliance of Energy Intensive Industries et al. 2007: 1). They refused an auctioning system of allowances as this would harm the competitiveness of the EU industry on global markets (Alliance of Energy Intensive Industries et al. 2007: 1). Instead, they proposed “sectoral approaches and performance-based allocation based on actual production” for example through benchmarks, a baseline or a credit system (Alliance of Energy Intensive Industries et al. 2007: 1f.). The performance-based allocation should be applied for “large emitting, homogeneous processes [whereas] other more dispersed activities may remain with an allocation based upon grandfathering based on historical emissions” as this would create a level playing field (Alliance of Energy Intensive Industries et al. 2007: 2). BusinessEurope even lobbied for a total free allocation of allowances until a global emissions trading system, which includes all main emitting countries, has been created. They argued that European companies would otherwise be disadvantaged on the global market (BusinessEurope 2007: 6). They further claimed to be „careful‟ about performance-based allocation as this might be a good option for some sectors whereas it would be „inappropriate‟ for others (BusinessEurope 2007: 8).
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Reforming the European Union Emissions Trading System (EU ETS)

Reforming the European Union Emissions Trading System (EU ETS)

the EU could relinquish most (if not all) decisional powers to an independent body that would manage the EU ETS, potentially including full control over the cap and/or price. In this context, the indepen- dent institution would have a mandate legislated by the EU specifying its objectives, such as achieving a certain emission target at least costs. However, this institution would be entitled to choose its instru- ments for interference. Such approaches to delegation most closely resemble the case of independent central banks having significant discretion over money supply, while being guided by some core objec- tives such as price stability, which were politically set at their inception. 7 Within this basic framework, many of the options that have been put forward to reform the EU ETS can be compared. For example, if the existing EU institutions remain the main entity in charge of managing the market, various options exist. The status quo, where the EU ETS remains a pure quantity mechanism, is the first possibility. Set I, with reform options such as a revision of the linear reduction factor as suggested by the European Com- mission ( 2014d ), is located in the top-left area of the EU ETS Reform Space. This is due to the limited changes in terms of delegation and explicit price certainty. Set II is located with set I, as adding another sector such as transport to the EU ETS, where short-term demand for permits is likely to be more predictable, could have a smoothing effect on price development but remains uncertain. Set III represents a set of options available to exert greater control over the emission price and could be located somewhere between a soft and a hard price collar depending on the specific design. The soft price collar entails less price certainty and also implies more quantity certainty than a hard price cor- ridor. When implemented by the EU, this option lies in the upper-middle area of the EU ETS Reform Space. The hard price collar, on the other hand, is placed in the upper-right corner as it offers stronger price certainty by implementing a strict price floor and ceiling. Both options lie below the status quo in terms of level of delegation, as the price collar would need to be defined in legislated rules in addition to the existing framework.
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The European Union Emissions Trading System and the Market Stability Reserve: Optimal Dynamic Supply Adjustment

The European Union Emissions Trading System and the Market Stability Reserve: Optimal Dynamic Supply Adjustment

Whether or not policymakers should be actively concerned with market price levels (or bounds) has been the focus of numerous debates following the sharp price declines in existing emission trading systems, such as the European Union Emissions Trading System (EU ETS) and the Regional Greenhouse Gas Initiative (see [Borenstein et al., 2015], [Grosjean et al., 2014] and references therein). Ideally, a policymaker would opt for an instrument of central control that has its instructions contingent on the state of the world revealed (e.g. eco- nomic shocks or technological advancements). By employing the ideal signal, the ex ante uncertainty would be eliminated ex-post and the optimum solution would be retained ([Weitzman, 1974]). However, designing a contingent instrument as such is very complex in practice and single-order policies are opted for instead ([Hepburn, 2006]).
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Long-Term Effects of Climate Campaigns on Total Greenhouse Gas Emissions under Cap-and-Trade Schemes: The Example of the EU Emissions Trading System and the Market Stability Reserve

Long-Term Effects of Climate Campaigns on Total Greenhouse Gas Emissions under Cap-and-Trade Schemes: The Example of the EU Emissions Trading System and the Market Stability Reserve

Further, Perino (2015) differentiates between sector-specific and general climate cam- paigns. The former are “campaigns directly targeting specific products discouraging their consumption” (p. 473), so “the purpose of such campaigns is to reduce emissions in the targeted sectors, that is, those that experience a reduction in demand” (p. 476). Therefore, sector-specific campaigns aim at encouraging individuals to reduce their demand for products and services that are either emission-intensive in production or provision or dur- ing or after the use phase, e. g. electricity, meat, petrol or flights. Instead of aiming at reducing demand of emission-intensive products, it is also possible that campaigns are designed to promote alternatives to these and hence rather aim at increasing the demand for less emission-intensive products, e. g. “green” electricity tariffs, plant-based food, bicycles or train journeys. However, since both options aim at changing demand in the same direction and might induce similar results, both are referred to as “demand reduc- ing” in the following. Next to these, general climate campaigns “aim at increasing the intrinsic motivation of consumers to reduce their carbon footprint generally and leave it to consumers how they want to achieve this” (p. 473). In this case, consumers have to rely on information about the carbon footprint of products and services which is often calculated via an environmental impact assessment or a life-cycle analysis using stand- ards like ISO 14040, ISO 14044 or ISO 14067 (International Organization for Standardization, 2018, 2020a, 2020b). However, both types of campaign recommenda- tions are given and carbon footprint specifications are calculated without taking environ- mental policy instruments or regulations like cap-and-trade schemes or carbon taxes into account (Perino, 2015). Above, Rosendahl (2019a) differentiates between a temporary and a permanent abatement or demand reduction, whereas temporary means the demand change is only in one year and permanent stands for a demand change that lasts from the year when the first demand change is made onwards. According to this two differentia- tions, the focus in the following will be on sector-specific climate campaigns with a tem- porary effect, since Perino (2015) focused on them as well and the goal is to update his findings. However, possible effects of general campaigns and of campaigns that lead to permanent behavior changes will be discussed later on.
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The right way to reform the EU emissions trading system: Alternatives to the market stability reserve

The right way to reform the EU emissions trading system: Alternatives to the market stability reserve

Alternatives to the Market Stability Reserve RWI Position #65, May 28, 2015 Summary In the light of persistently low prices for allowances, there is much debate about refor- ming the EU emissions trading system. Based on a proposal of the European Commission, the EU plans to introduce the so called Market Stability Reserve in 2019: a mechanism that regulates the amount of allowances within the market by temporarily taking some of the allowances into a reserve. The Commission thereby aims at reducing the surplus and securing a higher market price for allowances. An alternative reform proposal is the introduction of a minimum price. This RWI position puts forward a third alternative: retaining the emissions trading system in its original form and reducing the surplus by a one-time adjustment. In 2014, 900 million allowances from the years 2014 to 2016 were back-loaded to be auctioned in the years 2019 and 2020. Instead, these allowances should be deleted. Furthermore, if necessary, the amount of allowances could be constantly decreased by reducing the cap more strongly than planned. Compared with the other reform options, retaining the emissions trading system in its original form has two major advantages: first, politically driven interventions are minimized and, second, free market prices exhibit a stabilizing effect for fluctuations caused by the business cycle.
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Ex-post merger evaluation in the UK retail market for books

Ex-post merger evaluation in the UK retail market for books

22 sample. Nonetheless we think that the mergers’ impact on the timing of discounts/prices in short-life product markets may be a fruitful line for future empirical and theoretical research. The third set of heterogeneous treatment effect regressions deal with a market-specific heterogeneity. Similarly to Hosken et al. (2012), we look at whether the effect of the merger on prices differs according to the intensity of competition as measured by the number of competitions present in the market before the merger. 35 In particular, we define the variables post×overlap×high_comp, post×overlap×medium_comp and post×overlap×low_comp, which represent the effect of the merger in overlap areas with high, medium, and low number of competitors respectively. 36 Moreover, we investigate whether the merger had a differential impact depending on the dynamics of entry and exit. More precisely, we define the following variables: post×overlap×high_entry/ post×overlap×high_exit represents the effect of the merger in the areas where the entry/exit of 3 or more competitors occurred after the merger; post×overlap×medium_entry/ post×overlap×medium_exit represents the effect in the areas where there was entry or exit of 1-2 competitors after the merger. 37 The expectation is that entry can mitigate the potential anti-competitive effects of the merger. However, these latter interactions should be interpreted cautiously as there is a potential endogeneity problem (i.e. entry and exit may be triggered by the pricing conduct of the merged entity following the transaction). Nevertheless, the coefficient estimates for these two sets of interaction variables are mostly not significant, indicating that market-specific characteristics that should capture differences in the areas’ competitive conditions do not seem to play a significant role in explaining the effect of the merger at local level.
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The European Emissions Trading Scheme: An Overview of Operations and Lessons

The European Emissions Trading Scheme: An Overview of Operations and Lessons

The main market focus of course was on the price. In the early months, carbon prices rose steadily, tracking the rising gas price that determined the cost of switching away from coal in power sector generation. As gas prices continued to soar, the CO 2 price broke free from this marker and oscillated in the range EUR 20–25/tCO 2 for much of the year (Figure 1). From several perspectives, 2006 was the defining year for the EU ETS. It started with prices for phase I (2005–07) emission allowances reaching levels higher than anyone predicted, peaking at EUR 30/tCO 2 , whilst governments confidently issued draft National Allocation Plans (NAPs) for how they intended to allocate allowances for phase II, the Kyoto period of 2008–12. The year ended with phase I prices sinking close to zero, and several countries threatening to take legal action to overturn the European Commission’s rejection of almost all the submitted NAPs as inadequate. It was certainly a year of vast learning – as befits the middle of the first, learning, period of a major new system.
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Ex-post Merger Evaluation in the U.K. Retail Market for Books

Ex-post Merger Evaluation in the U.K. Retail Market for Books

To select the 60 stores for our analysis we followed an approach based on a matching methodology on observable area’s characteristics. This procedure aims at correcting for the potential sample selection bias that may affect the estimate of the treatment effects if we did not carefully choose treatment and control areas. Indeed, in non-experimental studies the assignment of subjects to the treatment and control groups cannot be considered to be random. Specifically, units receiving treatment and those excluded from treatment may differ not only in their treatment status but also in other characteristics that affect both participation and the outcome of interest. Thus the estimate of a causal effect obtained by comparing a treatment group with a non-experimental comparison group could be biased because of systematic differences between the two groups. This bias can be reduced if the comparison of outcomes is performed using treated and control groups that are as similar as possible. It might be relatively simple to assign a comparison unit based on a single observable characteristic. However, if the matching process is to be effective in mitigating the potential bias, one needs to consider a full range of factors across which the treatment and control group might differ.
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National climate policies in times of the European Union Emissions Trading System (EU ETS)

National climate policies in times of the European Union Emissions Trading System (EU ETS)

price floor in the electricity sector in 2017 (The Guardian, 2016). Germany discussed an additional “climate levy” for old coal power plants (BMWi, 2015) as well as a general carbon price floor (Bloomberg, 2016b). The former showed the potential to reconcile EU and national climate policies (Peterson, 2015) . However, both ideas have been dismissed at least for the moment. The general problem of the current additional national policies is that they are i) not effective in terms of additional emission reductions because with an unchanged amount of EU ETS allowances any national emission reductions within the EU ETS are offset elsewhere and ii) not efficient since they drive further wedges between carbon prices. In this context, B¨ ohringer et al. (2008) and Heindl et al. (2014) show that an additional national carbon tax in the ETS sector in one or more countries further increase EU-wide inefficiencies. Both papers impose a tax on top of the allowance price in the ETS sector (which is equivalent to a carbon price floor for the ETS sector) in one region while keeping the overall joint emission quantity target constant. On the one hand, the higher carbon price in the taxing region leads to an increase of overall abatement costs. On the other hand, firms in the taxing region emit less and sell their excess emission allowances, resulting in a fall of the EU allowance price. This leads to a decrease of overall abatement costs in the EU ETS because non-taxing regions face a lower price and abate less emissions. The authors find that the net effect is always an increase in overall abatement costs and thus higher inefficiencies. The non-ETS sector is disregarded because it is not affected by the tax policy in the ETS sector. Heindl et al. (2014) show that the general efficiency results also hold when allowing for uncertainty and correlation of abatement costs across countries as well as different country sizes in terms of emissions.
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The EU own resources system: Reform needs and options

The EU own resources system: Reform needs and options

3 P. B e c k e r : Lost in Stagnation: Die Verhandlungen über den nächsten mehrjährigen Finanzrahmen der EU (2014-2020) und das Festhalten am Status quo, SWP-Studie, Berlin 2012. Moreover, restructuring expenditures is required to sup- port more effectively a more dynamic, inclusive and ecological growth and development path for the EU. Within the current MFF, the Common Agricultural Policy (CAP) and the Structural Funds together account for al- most 80 per cent of total expenditures (see Table 1). The CAP (42 per cent of total expenditures) predominantly preserves existing (production) structures and pursues social goals (income support) within the so-called fi rst pillar. Structural and cohesion policy (36 per cent of to- tal expenditures) focuses too strongly on a traditional infrastructure policy favouring material (large-scale) infrastructure. As “richer” member countries benefi t from subsidies within the CAP and cohesion policy to a substantial extent, funds are not redistributed to the “poorer” member states in a focused and targeted way. Less than ten per cent of the EU budget is dedicated to competitiveness (i.e. research and innovation) and infra- structure.
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EMU calls for comprehensive labour market reform

EMU calls for comprehensive labour market reform

EMU calls for comprehensive labour market reform Intereconomics Suggested Citation: Dohse, Dirk; Krieger-Boden, Christiane; Soltwedel, Rüdiger (1999) : EMU calls for comprehensive labour market reform, Intereconomics, ISSN 0020-5346, Springer, Heidelberg, Vol. 34, Iss. 2, pp. 55-63

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The comprehensive agrarian reform program after 30 years: Accomplishments and forward options

The comprehensive agrarian reform program after 30 years: Accomplishments and forward options

accomplishments of CARP in terms of land reformed area and number of beneficiaries for the past 30 years have been substantial. However, there is evidence that the program has been poorly targeted in terms of areas covered and beneficiaries. DAR experienced difficulty in constructing the land inventory and masterlist of beneficiaries due to the absence of parcel based information on land use and ownership and the poor land record system in the country. There is also no inventory of farmers or tenants in the country. Targeting thus has been largely influenced by landowners, local officials including DAR officials at the local level so as to expedite the process of land tenure improvement. The agrarian justice system had to deal with conflicts between landowner and ARBS and among ARBs. It also has to deal with cases on cancellation of titles creating instability in property rights of CARP generated titles. The study also notes that there is weak evidence of overpricing of the land acquired by the government. The bulk of subsidy to farmers comes from the amortization subsidy in terms of regular subsidy, and implicit subsidies such as below market interest rates and non-imposition of penalties for delayed payment. Impact studies of CARP reported some welfare effects but these are muted and are generally observed among areas where lands covered have higher productivity. It is also not clear through what channels CARP improved welfare since welfare effects were similar between land owning agricultural households that acquired land through CARP and those through purchase or inheritance. There is also no clear evidence whether the objectives of CARP to increase investments in agriculture, increase access to formal credit of farmers and equity have been achieved. While the implementation of the program may have been flawed, redoing land reform by revising the law towards a “genuine” program is unnecessary. Only a few big-sized agriculture lands (greater than 50 hectares). The objectives of poverty and equity can also be achieved through alternative programs that is of lower cost to the government. The agrarian sector should instead focus on support programs to modernize agriculture that will benefit all small farmers (whether ARB or non-ARB). DAR should consider developing organizations or mechanisms to improve productivity and address economies of scale. The indefeasibility of CARP issued titles should be
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Why does emissions trading under the EU Emissions Trading System (ETS) not affect firms’ competitiveness? Empirical findings from the literature

Why does emissions trading under the EU Emissions Trading System (ETS) not affect firms’ competitiveness? Empirical findings from the literature

These findings show that the EU ETS has effectively reduced GHG emissions in the regulated sectors without incurring substantial competitiveness e ffects. Put differently, firms abated emissions without those abatement activities showing up negatively in competitiveness. Most likely, the design of the scheme so far (over-allocation, mostly for free) has prevented the negative e ffects for firms on average. While this is good news for the current level of European competitiveness, could this mean short-term gains for long-term pain? A low carbon price undermines incentives for early investments in low-carbon technology and could a ffect the system’s dynamic e fficiency (minimization of long run abatement costs). Therefore, negative competitiveness effects may just arise later, when more ambitious abatement will be required. At the same time, Vailles et al. (2017) argue that in Phase IV, energy e fficiency and renewable energy policies will enable emissions reductions that are already su fficient to meet the EU ETS target. Finally, other elements suggest that firms would be capable of absorbing higher carbon prices, as demonstrated by their ability to pass costs onto consumers and due to the low burden of energy costs on average. Therefore, we conclude that strong negative e ffects on competitive- ness under the current and near-future design of the scheme are unlikely. In consequence, this means that pol- icymakers need not implement further relief for the average regulated firm.
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Ex-post merger evaluation in the UK retail market for books

Ex-post merger evaluation in the UK retail market for books

The second set of regressions deals with title-specific heterogeneity. As Ashenfelter et al. (2013) point out, it is important to explore whether the merger influences products existing prior to the merger differently from products introduced after the merger in order to correctly assess its effects. Also, with short-life cycle goods the firms’ pricing strategy in relation to a specific product may vary over time to reflect different demand and supply conditions. In the book industry, for example, we observe (see footnote 34) that retailers tend to grant higher discounts on titles that have been just published –i.e. in the two months following publication. The merger may have then had an impact on the parties’ pricing incentives, which vary depending on the elapsed time since the book publication. To capture this heterogeneous effect on initial discounts for products released after the merger, we partition the treatment effect into three components: (i) the component capturing changes in prices for those titles released before the merger (post×overlap×released_pre), (ii) the component capturing changes in prices for those titles released after the merger but only considering the first two months after release (post×overlap×released_post×just_pub), and (iii) the component which is identified by the changes in prices for those titles released after the merger, but only considering the period following the second month after release. However, in this case we must exert a note of caution, as we have only a few books published post merger in our dataset, all of which essentially belong to the top-sellers category. Hence the empirical identification of this effect might not be particularly robust. In fact, we only show estimates for top-selling titles.
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Ex-post Merger Evaluation in the UK Retail Market for Books

Ex-post Merger Evaluation in the UK Retail Market for Books

The second set of regressions deals with title-specific heterogeneity. As Ashenfelter et al. (2013) point out, it is important to explore whether the merger influences products existing prior to the merger differently from products introduced after the merger in order to correctly assess its effects. Also, with short-life cycle goods the firms’ pricing strategy in relation to a specific product may vary over time to reflect different demand and supply conditions. In the book industry, for example, we observe (see footnote 34) that retailers tend to grant higher discounts on titles that have been just published –i.e. in the two months following publication. The merger may have then had an impact on the parties’ pricing incentives, which vary depending on the elapsed time since the book publication. To capture this heterogeneous effect on initial discounts for products released after the merger, we partition the treatment effect into three components: (i) the component capturing changes in prices for those titles released before the merger (post×overlap×released_pre), (ii) the component capturing changes in prices for those titles released after the merger but only considering the first two months after release (post×overlap×released_post×just_pub), and (iii) the component which is identified by the changes in prices for those titles released after the merger, but only considering the period following the second month after release. However, in this case we must exert a note of caution, as we have only a few books published post merger in our dataset, all of which essentially belong to the top-sellers category. Hence the empirical identification of this effect might not be particularly robust. In fact, we only show estimates for top-selling titles.
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Ex-post Merger Evaluation in the UK Retail Market for Books

Ex-post Merger Evaluation in the UK Retail Market for Books

UK Competition Commission June 14, 2013 Abstract: This paper empirically evaluates the price effects of the merger of two major book retail chains in the UK: Waterstone’s and Ottakar’s. We employ differences-in-differences techniques and use a rich dataset containing monthly scanner data information on a sample of 200 books sold in 60 stores in 50 different local markets for a period of four years around the merger. Since retail mergers may have either local or national effects (or both) according to the level at which retail chains set prices, we undertake an ex-post assessment of the impact of the merger at both levels. At the local level, we compare the changes in the average price charged before and after the merger in the shops located in overlap areas –i.e. areas where both chains were present before the merger– and in non-overlap areas –i.e. areas where only one chain was present before the merger. At the national level, we employ two distinct control groups to evaluate the merger, namely the competitors and the top-selling titles. We find that the merger did not result in an increase in prices either at the local or at the national level. We also perform heterogeneous treatment effects estimations in order to assess whether the effect of the merger differs along various dimensions of heterogeneity that are present in our data.
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Verified emissions and stock prices: Is there a link? - An empirical analysis of the European Emission Trading Scheme

Verified emissions and stock prices: Is there a link? - An empirical analysis of the European Emission Trading Scheme

In 2003 the basic conditions of the European market for emission allowances (or permits) were agreed on, where one allowance gives the right to emit one ton of CO 2 . In the first phase of the EU ETS emissions permits were predominantly grandfathered to the affected firms by allocation mechanisms formed by national politicians. During the three years of the first period firms could bank and borrow within the years, however, no exchange with later periods was allowed, so that the first period was a self- contained market unaffected by future caps. The general rules are given by the Commission, however, there is a wide delegation of tasks to the member states concerning allocation procedures, registration of firms, their certificates and emissions as well as the setting of an overall country-specific emissions cap. In this paper we analyze how the implementation of the EU ETS affected the involved firms’ stock returns. By conducting an event study, we can detect how investors value information about announce- ments concerning verified emissions. One would expect to find positive as well as negative abnormal returns as a reaction on the general information about the emissions trading market. The announcement of the effective emissions reveals information about the true amount of emissions needed for stock market participants. Investors can then correct their beliefs about the used technologies and applied abatement possibilities of the individual firm and hence stock prices react. In the cross sectional analysis we find evidence for the asset value hypothesis and only weak evidence for the abatement hypothesis, suggest- ing that investors were more concerned about the asset value of the permits issued to the firms than the induced abatement.
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The impacts of the European Emissions Trading Scheme on competitiveness and employment in Europe: A literature review

The impacts of the European Emissions Trading Scheme on competitiveness and employment in Europe: A literature review

The Porter hypothesis predicts small job gains from environmental regulation due to offsetting innovation. Further small job gains can be expected from the direct employment effects of the EU ETS (monitoring, administration, consulting). In contrast, indirect effects (demand reduction, leakage, substitution, opportunity cost, innovation effects) may in total have a modest negative impact on employment. Consequently, only one of the six scenarios considered gives – partial – job gains. Another model shows modest job losses as a result of the implementation of an ETS partly followed by transitory gains. Depending on their choice of scenario or design of model, the other studies show modest losses or zero impact. The overall impression is that job losses caused by the mechanism should not be overestimated. Neither economic theory nor the simulation studies reviewed suggest high employment reductions in the sectors concerned if the BAU is used as a reference scenario. If employment effects of the EU ETS are compared to impacts of alternative regulation methods assuring the Kyoto targets, the arrangement of the EU ETS is among the better choices. Because of its flexibility and the innovation incentives induced, an ETS should be preferred to non-market instruments when it comes to impacts on employment. All simulation studies suggest higher job losses under an ETS with auctioning than under an ETS with grandfathering as the chosen allocation method. Therefore, the mechanism does not induce high cost pressure, although in the grandfathering case opportinity costs occur as well. However, auctioning rather than grandfathering is the allocation method of choice if Europe wants to make optimal use of the scheme’s innovation potential (including incentives for the job market) and eventually optimise the schemes economic efficiency and ecological effectiveness 9 .
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