Carbonand inequality: from measurementto policy -...

Carbon and inequality: frommeasurement to policy

LSE CASE seminar – 1st December 2016

Lucas ChancelCoordinator – World Inequality Report, Paris School of Economics

Research fellow & Lecturer– IDDRI - Sciences Po

1st December 2016 Carbon and inequality: from measurement to policyLucas Chancel - LSE CASE Seminar

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Carbon and inequality: two key challenges of the21st century.• How can we reduce inequality and minimize

environmental pressure?• How can we protect the environment without

increasing inequality?

This presentation: carbon and income inequality inthe context of climate negociations• Climate negociations deadlock on climate

finance.• In part due to the good old COP differentiation

« CBDR » principle.• Another representation of climate inequalities

can help move the negociations foward.

Introduction


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1. The great reversal: within-countryinequality in emissions matter as much asbetween country inequality. Top emittersare well represented on all continents.

2. High concentration of individual CO2emissions: top 10% emitters emit aboutas much as bottom 50% emitters.

3. Progressive carbon taxes as a tool toconsider for global climate funds.

Key findings


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1. From measurement…1. Measuring individual CO2e emissions2. Global inequality of individual emissions

2. … to policy1. Progressive global climate finance2. National level progressive environmental

fiscal reforms

3. Concluding remarks

This presentation


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fiscal reforms


This presentation


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CO2 is main Green HouseGas (GHG), but methane,NOx, CFCs also important:CO2-equivalents or CO2econvert all gases in into CO2warming potential.

About 45GtCO2e per year:average of 6.5tCO2e percapita per annum in 2016.

CO2 emissions: a reminder


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Total CO2=direct+indirectDirect CO2: emitted at point of use (e.g.car driving).Indirect CO2: all the rest (goods andservices used to sustain ones’ lifestyle).Direct emissions represent (only)about 1/3 of total emissions in France.

Total CO2=national+foreignNational CO2 : emitted within territorialboundaries. Foreign: emitted abroad tosustain national consumption.National emissions represent about50% of total emissions in the UK.

Accounting for consumption-based emissions (1)


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Rebalancing global responsibilities:+41% difference for W. Europe-25% difference For China

NB: All regions including the poorest above sustainable level: 1.2tCO2e/year

Accounting for consumption-based emissions (2)


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Technical and environnementalClimate: 1° 5% change in heating relatedCO2 difference in France (Cavailhès and Hilal,2012)Density: rural households in the UK, 15%higher emissions due to transport (Fahmy etal. 2011)Housing type: pre-1980 dwellings emit 20%more heating-related CO2 (Cavaillhès et Hilal,2012)Equipements: Top efficiency equipments canreduce total emissions by up to 30%(Pourouchottamin et al. 2013)

What drives individual level CO2e emissions? (1)


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Social driversFamily structure: returns toscale (Weber and Mathews,2009)Age: life cycle (Maresca et al.2009)Date of birth: babyboomers,20% higher emissions thanaverage, controlling for incomeand equipments (Chancel,2014).


Chancel, 2014


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1. Income or consumption level,widely recognized as most importantdriver of individual level CO2 emissionsdisparities among households orindividuals (Wier et al., 2001, Lenzen etal. 2006; Lenglart et al.).

2. No evidence of environmentalKuznets curve

Income-CO2 elasticity varies acrosscountries and years, within the 0.6-1.1range.



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fiscal reforms


This presentation


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From a global income distribution…Lakner and Milanovic World Panel on Income Distribution(LM-WPID): collection of income and consumption surveysfrom 1988 to 2008. 10 deciles for 110 countries.

Top adjustments using WID.world: use top 1% share whenavailable and prediction when not available, following Anand& Segal (2014) approach.

…to a global distribution of emissionsUse GTAP-CICERO I-O data (Peters et al. 2015) to obtainconsumption-based emissions in each country in 1998 and2008.

Allocate emissions to income groups following a simplepower law within each country (cf. Chakravarty et al. 2009),using several elasticity values.

Allocating CO2 emissions to individuals: our methodology

Per-capita CO2e emissions within group i, for a given country and elasticity e:


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• Database covers >90%world GDP, about 90%world population anabout 90% world CO2eemissions.

• 6107 groups ofemitters/earners from1998 to 2013, every 5years.

Scope of carbon inequality database


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• Middle and upper classes ofemerging countries on the risesince Kyoto: above 35% growth.

• Relative stagnation at the top andthe bottom: around 10% growth.

• Emergence of global middle class:good from income perspective,alarming for the climate.

Unequal growth in per capital CO2e emissions


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15 years ago, within-countryinequality, as measured byTheil index, made up only30% of global individualemissions inequality, todayit explains 50%.

Within-country CO2e inequalities increasingly important


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Individual emissions remain highly concentrated


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Emitter groups focus: bottom emitters


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fiscal reforms


This presentation


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Financing climate change efforts:mitigation vs. adaptation.

Adaptation requires about150bn€ year. Currently about10bn€ year, 61% EU, 25% USA,13% other rich.

Unclear logic behind financing.Should emerging economies alsohelp to scale up in whatproportions?

Need for more transparent effort-allocation rules


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Burden-sharing strategies

Strategies Threshold value(annual tCO2/cap)

Ratio to worldaverage emissions

Strategy 0 “Flat tax” 0 -

Strategy 1 World average 6.0 1

Strategy 2 Top 10% 13.2 2.2

Strategy 3 Top 1% 56.4 9.4

NB: data for 2013


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Strategy 1: Strategy 2: Strategy 3:

Flat carbon tax Above world average Top 10% emitters Top 1% emitters

(>6.0 tCO2e) (> 2.2x world average) (> 9.4x world average)

Current 1990 1850 Current 1990 1850 Current 1990 1850 Current 1990 1850

North America 21.2 23.2 32.2 35.7 38.5 44.6 46.2 49.5 53.5 57.3 63.6 67.9

EU 16.4 15.6 26.5 20 17.4 31.5 15.6 12.5 28.6 14.8 11.5 21.3

China 21.5 19.9 12.2 15.1 12.3 3.1 11.6 9.2 2.1 5.7 3.3 <0.5


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Strategy 2: burden on top 10% emitters (about 50% emissions)

Current Required Increase

€bn % Total €bn % Total €bn RatioNorth America 2.3 25% 69 46% 66.8 31

EU 5.5 61% 24 16% 18.5 4

China 0 0% 18 12% 18.0 -


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Most carbon taxes are flat: (relatively) easy toadminister. Progressivity not that easy toimplement in practice.

Yet not unfeasible: additional taxes onincome, exemptions below certainconsumption level, taxing certain goods.

Implementation through progressive carbon taxes


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Implementation through income taxes

Strategy 1: Above average Strategy 2: Top 10% emitters Strategy 3: Top 1% emitters

Region Mean income (€) Marginal income tax (%)

Lower income threshold (€)

Mean income (€)

Marginal income tax (%)

Marginal income threshold (€)

Mean income (€) Marginal income tax (%)

Marginal income threshold (€)

North America 32600 0.6 5851 43400 1.2 14278 130100 5.3 73218

EU 18200 0.7 6155 30100 1.2 13797 171000 5.4 71922

China 5900 1.6 2730 16800 2.9 6663 37300 13.9 32799


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Implementation through taxes on consumption goods/services

• Differential rates on air tickettax: business vs. economy

• Basic calculations: 180€business vs. 20€ economy on allflights would yield €150bn

• Test other scenarios withbreakdowns based on ourdifferent strategies. For e.g.Strat.2,1990

Strategy 2 (top 10%) - since 1990

Share according to strategy

Effort per

region (bn€)

Total flights

per region (108)

Corresponding avgprice per ticket (€)

Economy class rate

(€)

Business class rate(€)

N. America 50% 74 8 89 22 355EU 12% 19 6 30 7 119China 9% 14 4 35 9 141


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• Australian carbon tax (2012): flat rate butprogressive fiscal reform

• Indonesian fossil fuel subsidy reform(2014): increase in fossil fuel prices to fundsocial security (healthcare) and direct cashtransfers

• French carbon tax (2014): low incomeenergy cash transfers

In fact, progressive carbon tax reforms already exist


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1. Kyoto to Paris : progressive shift frombetween country carbon inequality to within-country issue.

2. Adaptation funding: remains hot topic, especially after COP21/22.

3. Progressive carbon fiscal reforms: one of the tools to consider.

4. Need for more carbon inequality research: scientific purposes & debate/politicalpurposes towards administrative purposes

Concluding remarks


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Thank you for your [email protected]


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Technical slides


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Well known issue of sample size, top-coding andunder reporting of top incomes with survey data. Fore.g. Alvaredo (2010): Argentinian data.

Lakner-Milanovic (2015): reallocation of differencebetween survey income and NA income to top decilegroup (cf. Banerjee & Piketty, 2010) and then estimateshares of top 1% following Pareto type-Iinterpolation.

Segal & Anand (2014): reallocation assumptionhazardous. Proportional scale-up difference to topincome groups better. Prefer to use empirical top 1when available (from WID).

Going further (Fournier, 2015): non-parametricmethod of estimation, i.e. relax assumption on shapeof distribution at the top (on going work).

Issues with top income surveys


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Tentative method to go beyond currentestimates, better than currentestimates, not fully satisfactory.

Regress known top 1% shares (forabout 20 countries and 5 time periods)on bottom 10%, top 10% from LM-WPID , and a time indicator.

Then predict unknown top1 shares forall other countries and time periods.

Recalculate top 90-99 share for eachcountry, using predicted or empiricaltop 1 share accordingly.

9,078 income groups for 4 time periods.

Correcting top income shares


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Input output method applied to theenvironment. Cf. “Environmentalrepercussions and the economicstructure: an input-outputApproach” Leontief (1970).

Multiregional extension of themodel by Peters and Herwich(2006;2008), Peters and Andrew(2010). Data based on Global TradeAnalysis Project (GTAP), availablefor 1998 and 2008 (Peters andAndrew, 2015).

Use consumption/national CO2ratios for 98 and 08 to predictconsumption CO2 for years 2003and 2013.


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Implementation

Flat carbon taxStrategy 1: Strategy 2: Strategy 3:

Above world average Top 10% emitters Top 1% emitters(>6.0 tCO2e) (> 2.2x world average) (> 9.4x world average)

Region Current 1990 1850 Current 1990 1850 Current 1990 1850 Current 1990 1850

North America 21.2 23.2 32.2 35.7 38.5 44.6 46.2 49.5 53.5 57.3 63.6 67.9

EU 16.4 15.6 26.5 20 17.4 31.5 15.6 12.5 28.6 14.8 11.5 21.3

China 21.5 19.9 12.2 15.1 12.3 3.1 11.6 9.2 2.1 5.7 3.3 <0.5

Russia/C.Asia 6 9.2 11 6.6 12.8 12.8 6.3 13.4 11.2 6.1 10.7 7.8

OtherRich 4.6 4.2 4.2 5.8 4.8 3.7 4.5 3.3 1.8 3.8 2.7 1.4

Mid.East/N.A 5.8 4.7 3 5.4 3.5 1.2 5.5 3.3 0.9 6.6 2.8 0.6

Latin America 5.9 5.8 2.8 4.3 4 0.8 4.1 3.6 <0.5 1.9 1.9 <0.5

India 7.2 6.3 3.1 1 0.7 <0.5 0.7 <0.5 <0.5 <0.5 <0.5 <0.5

Other Asia 8.3 7.6 3.5 4.7 3.8 1 4.1 2.8 <0.5 2.7 1.7 <0.5

S.S.Africa 3.1 3.7 1.6 1.5 2 1.1 1.5 2.2 1.1 1.1 1.8 0.9

World 100 100 100 100 100 100 100 100 100 100 100 100


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Assume constant elasticityfunction, and broad rangeof elasticity values.

Elasticity values rangingfrom 0.6 to 1.5.

Central scenario 0.9,median in the literature.

Allocation of national CO2 emissions to individuals

Per-capita CO2e emissions within group i, for a given country and elasticity e:

Sensitivity to elasticity parameter

Lucas Chancel - Lunch Seminar PSE 4009/02/2016

Sensitivity to elasticity parameter

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Top1 share regressions

Theil values

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