Abstract
This paper sets out a theoretical model to analyse the effect of UK’s climate change levy (CCL) and the emissions trading scheme (ETS) on the productivity and overall economic efficiency of businesses. A microeconomic analysis at plant level enables us to understand the implications of compliance cost for the overall cost structure of the plant. Some of the dynamics of an economic instrument can be lost at an aggregate level. We will use a stochastic translog frontier cost function with a cost inefficiency component to analyse whether the two instruments affect the overall economic efficiency of the firm. The model allows for factor substitution to take into account changes in relative factor prices, which can reduce the perceived adverse effects of the two instruments on productivity and efficiency of plants. The paper also briefly outlines the implications for the cost function due to some of the key developments since their inception in 2001 (CCL) and 2002 (ETS).
This paper is part of an on going part-time PhD research at the University of Hull, UK. The author is currently working as an Economist with the Greater London Authority.
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Varma, A. (2006). UK’s climate change levy and emissions trading scheme: implications for businesses’ productivity and economic efficiency. In: Antes, R., Hansjürgens, B., Letmathe, P. (eds) Emissions Trading and Business. Physica-Verlag HD. https://doi.org/10.1007/3-7908-1748-1_21
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DOI: https://doi.org/10.1007/3-7908-1748-1_21
Publisher Name: Physica-Verlag HD
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