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Emission allowances are often distributed for free in an early phase of a cap-and-trade scheme (grandfathering) to reduce adverse effects on the profitability of firms. If the grandfathering scheme is phased out over time, firms may nevertheless relocate to countries with a lower carbon price...
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The cost-effectiveness of unilateral emission abatement can be seriously hampered by emission leakage. We assess three … widely-discussed proposals for leakage reduction targeted at energy-intensive and trade-exposed industries: border tax … both efficiency and equity criteria matter. Border tax adjustments reduce leakage and provide global cost savings but …
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