Scandinavian Working Papers in Economics
Umeå Economic Studies,
Umeå University, Department of Economics
No 668: Swedish Industry and Kyoto – An Assessment of the Effects of the European CO2 Emission Permit Trading System
Runar Brännlund () and Tommy Lundgren ()
Additional contact information
Runar Brännlund: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden
Tommy Lundgren: Department of Forest Economics, Postal: S 901 83 Umeå, Sweden
Abstract: We assess the effects on Swedish industry input and output demands of different climate policy scenarios
connected to energy policy induced by the Kyoto protocol. A unique data set containing firm level data
on outputs and inputs during the years 1991 – 2001 is used to estimate a factor demand model, which is
then simulated for different policy scenarios. Sector specific estimation suggests that the proposed
quadratic profit function specification exhibit properties and robustness that are consistent with economic
theory; that is, all own-price elasticities are negative and all output elasticities are positive. Furthermore,
the elasticities show that the input demands are, in most cases, relatively inelastic. Simulation of the
model for 6 different policy scenarios reveal that the effects on Swedish base industry of a EU level
permit trade system is dependent on (i) removal or no removal of current CO2 tax, (ii) the established
price of permits, and (iii) what will happen to the electricity price. Our analysis show that changes in
electricity price may be more important than the price of permits for some sectors.
Keywords: CO2- emissions; factor demand; fossil fuels; tradable permit market
32 pages, December 5, 2005
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