Brown Bag Seminar Industrial Economics

The European Emissions Trading System (EU-ETS) is the key policy tool of the EU to reduce GHG emissions. To prevent carbon leakage, most of the emission permits have been allocated for free in the industrial sector. A carbon border adjustment mechanism (CBAM) will be introduced end of 2023 as an alternative carbon leakage protection instrument. However, the CBAM will only gradually replace free allocations. Moreover, allowances might continue to be allocated for free to production for export markets. We will exploit a change in the free allocation rules in 2013 to estimate the effect of the removal of free allocations on non-EU exports and EU-sales for a panel of German manufacturing firms. We will further investigate how the effect varies with trade intensity to further inform the targeting of free allowances.