Industry energy support and its interaction with EU ETS

We study four possible industry support measures to improve industrial competitiveness in some EU Member States using our applied General Equilibrium Model GREENR. Our model accounts for complex sectoral and global interactions, but also for the current EU Emissions Trading System (ETS) with its active Market
Stability Reserve (MSR). Because the MSR temporarily punctures the waterbed
effect, we find that an abatement subsidy implemented now is very effective in reducing EU-wide emissions. However, this subsidy hardly improves the immediate
competitive position of the industry, in contrast with the other support measures
that reduce cost of production such as a subsidy on output, energy inputs or electricity. Interestingly, these subsidies will increase cumulative emissions within the EU ETS due to current MSR rules, while output and electricity subsidies may lead to lower global emissions in the short run too.