Carbon pricing, compensation and competitiveness: lessons from UK manufacturing

The initial idea of the policy was to first set the desired carbon price floor (path) and then stipulate the tax needed to top up the EUA price with the Carbon Price Support (CPS). [...] The UK CPS was expected to accelerate the decarbonization of the UK power sector and came in response to the general concern in the years leading up to phase III of the scheme that the EUA price was too low (UK BEIS, 2019); in 2012, the average allowance price was around e7/tCO2. [...] Even if a firm meets the two criteria, it also needs to submit an application 22Generally, the compensation schemes need to comply with the principles set out in the Environmental and Energy Aid Guidelines and the ETS State and Guidelines adopted by the European Commission. [...] As we will see in Section 4, having a measure of the electricity cost intensity is important in the empirical strategies we use (as a matching variable in the DiD estimation and as the running variable ci in the RD design). [...] The exact height of the bars located to the left of the threshold is sup- pressed due to confidentiality reasons, but the share of compensated plants is below 10% for those bins.