Relative prices determine the competitiveness of different locations. In this paper, the focus is on the role of regulatory differences between Germany and other EU countries which affect the shadow price of carbon emissions. The authors calibrate a Melitz-type model, extended by firms’ emissions and abatement decisions using data on aggregate output, trade, and emissions. The parameter estimates are derived from the German Manufacturing Census. The quantitative model allows the recovery of a measure of how regulatory stringency evolved in the EU and Germany in terms of an implicit carbon price paid on emissions. This price reflects energy and carbon prices in addition to command-and-control measures and decreased from 2005 to 2019 in most sectors – both in Germany and other EU countries. The trend is more pronounced in Germany than in the rest of the EU. In counterfactual analyses, it is shown that this intra-EU difference has substantially increased German industrial emissions. Had the EU experienced the same decrease in implicit carbon prices as Germany, German emissions would have been substantially lower. Germany has increasingly become a pollution haven.
This event is co-organised with the Vienna Institute for International Economic Studies (wiiw) and the Research Centre International Economics (FIW).
The project leading to this webinar has received funding from the European Union’s Horizon 2020 research and innovation programme under the Marie Sklodowska-Curie grant agreement No. 101031139.
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