Download - June 27-29 GTAP Conference Purdue University Welfare Cost for Europe of Non Participation in the Market for Tradable Permits and Comparative Efficiency.

June 27-29GTAP ConferencePurdue University

Welfare Cost for Europe of Non Participation in the Market for Tradable Permits and Comparative Efficiency of Corrective Policies towards Energy Intensive Sectors

Alain Bernard and Marc Vielle


Article 3 of the Kyoto Protocol

“Any such trading shall be supplemental to domestic actions for the purpose of meeting quantified emission limitation and reduction

commitments under that Article”


French National Program of Climate Change Policy, MIES 2000

Tradable permits...“may only be supplemental to domestic efforts, which must represent the

bulk in fulfilling the commitments”


French Committee of Sustainable Growth

“the trade of permits, in a country that would constrain its economy and population to a severe emissions abatement in order to get

revenue from the sale of permits, could aggravate social inequalities”


Issues

Welfare cost of non participation by EU to the market of tradable permits

Implications for Energy Intensive Sectors (EIS)

Assessment of various policies aimed at compensating distortions in EIS between Europe and other Annex B countries


Plan

• Overview of the model GEMINI-E3/GemWTraP• The Benchmark Scenario: Annex B Tradable Permits• Non Participation of EU and No Corrective Measures• Corrective measures for EIS• Summary of Results


GEMINI-E3 : A Worldwide Dynamic General Equilibrium Model

7 Regions

USA Energy Exporting Countries

Japan Former Soviet Union

France Other countries of European Union

Rest of the World

8 Sectors/Commodities

Coal

Crude Oil

Natural Gas

Refined Oil Products

Electricity

Agriculture

Energy Intensive Sectors

Other Goods and Services

Period of simulation

yearly, from 2000 to 2040


GEMINI-E3/GemWTraP

Main Characteristics

• Total Price Flexibility • Detailed Representation of Indirect

Taxation• Measure of Welfare Cost of Policies and

Components• and of course: Armington Assumption


Measure of Welfare Cost and Components

S = R - CVITotal Welfare Gain Variation of Income Compensative Variation of

Income

GTT = EXP PEXP - IMP PIMP

PIMP IMP - PEXP EXP

= -DWL + GTT Deadweight Loss of Taxation Gains from Terms of Trade


Definition of the Scenarios:Benchmark versus Non participation of EU

• Tradable Permits between Annex B Countries

• Tradable Permits between Annex B Countries other than European Union Domestic Tax in European Union countries

After 2010 : Kyoto Forever


Price of permits with and without European Union

0

20

40

60

80

100

120

140

160

180

200

2010 2040

with EU

without EU

In $ 1990 per ton of carbon


EU Tax versus Price of International Permits

0

100

200

300

400

500

600

700

800

900

1000

2010 2040

French CarbonTax

EU11 CarbonTax

Internationalpermits

Price of carbon in $ 1990 per ton


Welfare Cost for Annex B and non Annex countries

(in % of Households’ Final Consumption)

-2%

0%

2%

4%

6%

8%

France EU11 USA Japan FSU EEC ROW

With EU

Without EU

in 2010




-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

France EU11 USA Japan FSU EEC ROW

With EU

Without EU

in 2010(Zoom)




-2%

0%

2%

4%

6%

8%

10%

12%

14%

France EU11 USA J apan FSU EEC ROW

With EUWithout EU

in 2040




-2%

-1%

0%

1%

France EU11 USA J apan FSU EEC ROW

With EUWithout EU

in 2040(Zoom)


Components of Welfare Cost for European Countries

Difference between Participation and Non Participation

(in Billions of F90 or ECU90)

-120

-100

-80

-60

-40

-20

0

20

40

France 2010 France 2040 EU11 2010 EU11 2040

Net Gains from Terms of Trade Net Sales of permitsDeadweight Loss of Taxation Welfare Cost


Change in Production for EIS

(in % w.r.t. BaU, in 2040)

Participation of EU Non participation of EU

France -0.4% -8.9%

EU11 -1.5% -10.9%

USA -2.5% -0.1%

Japan -2.2% -0.4%

FSU -31.5% -15.5%

EEC 4.2% 6.5%

ROW 2.2% 3.6%


EU Corrective Policies for EIS

Exoneration of Carbon Tax

Mitigation of Carbon Tax (EU tax = price of permits)

Access to Permits for EIS

Carbon Tax Rebating

Implementation of Duties for non EU Imports


0

500

1000

1500

2000

Comparisons of Carbon Tax in France

Year 2040

(1990 $ per ton of Carbon)


0

500

1000

1500

2000

Comparisons of Carbon Tax in EU11

Year 2040

(1990 $ per ton of Carbon)


Tradeoff between Welfare and EIS Production

(France)

0.00%

0.50%

1.00%

1.50%

-1.00% 1.00% 3.00% 5.00% 7.00% 9.00%

Carbon Tax Exoneration

No Corrective Policy

Carbon Tax Rebating

Carbon Tax Mitigation

Access to Permits for EIS

FullPartici-pation

Import Duties

Welfare Loss

(in % of HFC)

Change in EIS production


Tradeoff between Welfare and EIS Production

(EU11)

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

1.60%

1.80%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00%

12.00%

Carbon Tax Exoneration

No Corrective Policy

Tax Rebating

Tax Mitigation

EIS Permits Access

Full Participation

Import duties

Welfare Loss

(in % of HFC)

Change in EIS production


Main Teachings

Non participation to the market of permits is costly for EU

Concerning other countries:

Net Sellers are losers

Net Buyers are winners

Concerning leakage in European EIS:

- all considered policies have approximately the same efficiency

- some increase the welfare cost, some on the contrary alleviate the burden


0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

France

EU11

USA

Japan

FSU

EEC

ROW

EIS

GDP

Appendix

Share of Energy in the Cost of Production: EIS versus GDP

(1990)


0% 5% 10% 15% 20%

Chemistry

Iron and SteelProducts

Other Ores

Synthetic Fiber

Construction andceramic products

Glass

Paper board

Share of Energy in the Cost of Production for some EIS

(France, 1990)