Analysis from the Centre for Economic Performance (CEP) found that some firms receive an excess of free permits under the European Union’s emissions trading system (EU ETS), while other firms do not receive enough.
The report argues that this inefficiency in how permits are distributed increases the likelihood that some firms will relocate, placing up to ten per cent of the jobs in the EU ETS at risk. This number corresponds to over two per cent of manufacturing employment in the EU.
To mitigate the risk of relocation, CEP recommends changes to the way free permits are distributed. It calls for them to be handed out based on an index that considers both the carbon and labour intensity of a firm. Current decisions only take carbon intensity into account.
The report also calls for a reduction of the overall number of permits handed out for free, perhaps allowing for increased public revenue from their sale.
Ralf Martin, a co-author of the CEP report, said: “Reducing job risk and increasing public revenues should be a win-win strategy for governments at the best of times. In the current economic crisis, such measures are even more imperative.”