Lecturer: Matti Liski, Department of Economics, Aalto University, Finland
Introduced by: Enrica De Cian, CMCC@Ca’Foscari

The seminar will be held in Aula Cancelletto, Edificio Porta dell’Innovazione – VEGA, Via della Libertà 12, Venezia Marghera, Venice.

Abstract: 
It is tricky to design local regulations on global externalities. Firms may relocate and merely shift the externality-causing activities to another location if the regulation is too costly and inadequately compensated. Yet, the true ease of moving is only known by the firm, and any compensation scheme comes at a risk of paying unnecessarily high transfers to some of the firms. Regulated industries fiercely lobby for compensations, emphasizing the cost of regulation and easiness to relocate production to other countries. If the aim is to keep all the firms, these claims need to be respected although they are difficult to verify. But doing so will create potentially large private rents to the industries. The issue has become topical in the EU Emission Trading Scheme (ETS), where industrial emitters considered to be susceptible to “carbon leakage” have received both generous allocations of free emission allowances and direct monetary compensations. This set-up raises an important question for the policy design that we address in this research. How should such local regulations on a global problem be designed to reach environ-mental targets and to limit “leakage” without creating excessive private rents? In particular, how much industries under leakage risk should be compensated, and how they should be compensated — with lump-sum transfers or by compromising on the level of regulation? The main challenge, that seems unavoidable, is that only firms know, firstly, the true costs of moving to another location and, secondly, the cost of compliance if staying in the regime. Taking a mechanism design approach, we study the optimal design of environmental policies when firms have such two-dimensional private information. We also provide an illustrative quantification of the optimal carbon leakage policy for key sectors in the EU emissions trading program.

HOW TO PARTICIPATE:
The seminar will be broadcasted via Go-to-Webinar.
Please, click on the following link for registration:
https://register.gotowebinar.com/register/6873478583992814594

After registering, you will receive a confirmation email containing information about joining the webinar.

Working Language: English

Professor Matti Liski
Matti Liski is a Professor at the Department of Economics at Aalto University. He has been a visiting scholar or associate at the Toulouse School of Economics, the MIT Center for Energy and Environmental Policy Research, the Energy Policy Research Group (EPRG) of the University of Cambridge, and CESifo-Munich. His fields of interests are energy and environmental markets, natural resources, microeconomic theory, public economics, growth and industrial organization. His most recent contributions to environmental and resource economics relate to climate policies and carbon pricing. His past and current professional duties include: editor of the Scandinavian Journal of Economics, and associate editor or member of board of Environmental and Resource Economics and Environment and Development Economics.