Carbon pricing, coastal proximity and plant survival: evidence from the European cement sector

Abstract

Concern over carbon leakage has moderated the environmental ambition of climate policy and led to provisions to support sectors deemed at risk of relocation due to asymmetric regulatory frameworks. Understanding the relationship between carbon pricing and firm competitiveness represents the first step in designing policy to lower relocation risk while achieving climate change mitigation targets. This paper uses survival analysis to identify the factors driving cement plant closure in the EU between 2005-2016. We incorporate geospatial data to test whether the hazard rate of plant closure is higher in areas more exposed to international trade but find no significant result. Overall, we find no evidence of carbon leakage having occurred due to the EU Emissions Trading System. On the contrary, our results suggest that higher carbon prices lower the risk of plant closure which may be due to increased profit from carbon cost pass-through and sale of allocated allowances.

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