Economy wide Implications of a Carbon Tax in ASEAN: A CGE Perspective

Transcription

1 Economy wide Implications of a Carbon Tax in ASEAN: A CGE Perspective Ditya Agung Nurdianto and Budy Prasetyo Resosudarmo Arndt Corden Division of Economics Crawford School of Economics and Government College of Asia and the Pacific 22 October 2010

2 Presentation Outline Introduction The IRSA ASEAN Model Policy Simulations Conclusion

3 International Cooperation Multilateral Cooperation Kyoto Protocol (COP3): Highlights: Binding and clear GHG emission reduction target. Problems: China and US were not original signatories; and excluded developing countries. Copenhagen Accord (COP15): Highlights: New classification of countries; and fund for mitigation and adaptation. Problems: Non binding and limitation of top down approach. Regional Cooperation (Southeast Asia) APEC: Energy/fuel efficiency, forestry, and alternative fuels. ASEAN: Energy efficiency, transportation, forestry, bio diversity, and transfer of technology. A gap between intent and action.

4 Climate Change Vulnerability Source: Yusuf and Francisco (2009)

5 Energy Prices 1. Energy price distortion is prevalent in Indonesia due to government subsidy. 2. To a lesser extent, energy price distortion also occurs in Malaysia and Thailand. Kerosene Automotive Premium Natural Gas Steam Coal Electricity Diesel Unleaded USD/1000 USD/liter USD/liter USD/10*7 USD/ton USD/kWh liters kcal Indonesia Industry Household Electricity Malaysia Industry Household Electricity Philippines Industry Household Electricity Singapore Industry 0.10 Household Electricity Thailand Industry Household United Kingdom Electricity Industry Household Electricity Japan Industry Household , Electricity Korea Industry 1, Household 1, Electricity United States Industry Household Electricity

6 Carbon Pricing Solution Long run (possible) solution: Putting a price on carbon emission. Market based responses. Quantity and Price Instruments: Quantity: Cap and Trade system. Price: Carbon tax scheme. Empirical studies by, Kaplow and Shavell (2002), Pizer (2002), Green (2008), McKibbin (2008), Metcalf (2009), and Strand (2010) suggest that a price instrument is superior to a quantity instrument. Double the pleasure, double the fun: Double Dividend hypothesis. No Regret option: environmental improvement, maybe; less distortionary tax, yes. Recycling mechanisms: industries, households, and government. The limitations: regress and rebound. Regress: regressive in developed countries and progressive in developing countries. Rebound: energy efficiency lower price increase consumption increase production increase emission.

7 Indonesia s Commitment Source: National Council on Climate Change (2009)

8 The IRSA ASEAN Model The Inter Regional System of Analysis for ASEAN First fully integrated, SAMbased, multi country model of selected ASEAN countries. not GTAP, not Globe. Highlights, among others: Disaggregated household groups for distributional effect. Financial transfers recorded, e.g. remittance. Endogenized revenue recycling mechanism.

9 Construction of the Model ASEAN Social Accounting Matrix Data collection Construction Fully based SAM multi country CGE Model development Programming in GAMS Multi country CO 2 emission Data collection Emission model Simulation Policy scenario Results and analysis

10 Classifications of the Model 6 countries: Indonesia, Malaysia, Philippines, Singapore, Thailand, and Vietnam For each country: Sectoral Classification (26) Labor Classification (2): Skilled and Unskilled Non Labor Classification (3) : Land, Natural Resources, and Capital Households (4) : Rural Low, Rural High, Urban Low, and Urban High Other Institutions (2): Government and Corporate Other Accounts (3): Indirect Tax, Import Tariff, and Saving Investment Rest of the World account: Capital Account (Import Tariff and Saving Investment) Import and Export Account (26)

11 Production Sectors Agriculture Farming Forestry Fishing Coal Oil Natural gas Minerals nec Food and beverages Textiles and leather products Wood and paper products Petroleum and coal products Chemical, rubber, and plastic products Mineral products nec Metal products Other manufacturing Electricity Gas distribution Water Construction Trade Transportation Communication Financial services Public administration Other services

12 Primary Data Sources GTAP version 7 database: Unit are in 2004 USD Multi country I O Table GTAP E for emission Country specific data: SAM Family/household income expenditure survey Population and household census Yearbook of statistics Others: ASEAN statistical yearbook Bilateral remittance estimate International fuel prices World Development Indicators

13 Initial Values IDN MYS PHL SGP THA VNM Macroeconomic Indicators (in USD million) Private Consumption 174,751 37,373 58,936 55,286 86,874 29,139 Government Consumption 20,035 11,641 8,754 13,911 16,129 2,798 Fixed Investment 49,317 17,316 14,118 31,396 40,344 15,073 Export 89, ,873 51, , ,174 32,660 Import 88, ,987 48, , ,691 36,666 Gross Domestic Product 244, ,214 84, , ,831 43,003 Sectoral Disaggregation (in USD million) Agriculture 33,917 6,299 10, ,590 6,405 Manufacture 96,033 72,203 31,414 29,220 68,253 22,935 Service 124,752 36,397 43,059 77,289 79,855 13,687 Average Expenditure per Capita (in USD) Rural Low Rural High Urban Low Used as Share Parameter for Recycling Carbon Tax Revenue to Households 388 1, , , , ,429 1, Urban High 1,682 3,325 2,104 21,222 4,696 1,328 Population (in thousands) Rural 114,975 8,438 32,004 44,350 60,720 Urban 101,469 16,736 51,908 4,167 20,928 21,312 Poverty Incidence (in percent) Rural Urban CO 2 Emission from Fossil Fuel Combustion 357, ,012 76,641 40, ,977 86,708 (in kiloton)

14 Model Structure

15 Carbon Pricing Mechanism Carbon emission and XCOH ehd,, cchehd,, XHOU _ Sehd,, XCOI,, cci,, XINT _ S,, eid eid eid Carbon sales tax Carbon revenue Revenue recycling stx cotax ( XCOI XCOH ) ed, d eid,, eid,, i h / PQ _ S ( XINT _ S XHOU _ S ) ed, eid,, ehd,, i h TCTR ( stx PQ _ S XHOU _ S ) d c, d c, d c, h, d c h ( stx PQ _ S XINT _ S ) c cd, cd, cid,, i h i g 1 and 0 h, i, g 1 d d d d d d Industrial tax reduction TCI tco2 ( PDOM XTOT ) d d i, d i, d i

16 Financial Flow of IRSA ASEAN SAVING INVESTMENT FACTORS Unskilled Labor The ENGINE PRODUCTION Agriculture... Coal Skilled Labor Land Natural Resources Capital CORPORATE SAVING INVESTMENT Petroleum Gas... Other Services PRODUCTION Agriculture... Coal Petroleum Gas GOVERNMENT... Other Services GOVERNMENT HOUSEHOLDS High Urban High Rural Low Urban Low Rural HOUSEHOLDS High Urban High Rural Low Urban Low Rural

17 Financial Flow of IRSA ASEAN

18 Policy Simulations 1 carbon price at USD 10 per ton of CO 2 emission (MoF, 2009). Uses of fossil fuel (read: coal, petroleum products, and manufactured gas) by households and industries are taxed (read: sales tax). 2 coordination scenarios: Symmetrical in all countries and asymmetrical with only Indonesia implementing a carbon tax. 3 energy responses: Without any energy efficiency gain vis à vis 10 percent coal use efficiency gain vis à vis 5 percent fuel use efficiency gain. 3 policy variations (recycling mechanisms): a. Government expends all carbon tax revenue to increase its consumption; b. Government expends 50 percent of the revenue and redistributes 50 percent back to lowincome households in both rural and urban areas in the form of cash transfers; and c. Government expends 50 percent of the revenue and redistributes 50 percent back to the industries in the form industrial tax reduction.

19 Price Impact Simulation: Symmetrical; USD 10 price per ton of CO 2 emission; Recycled through government expenditure; and No energy use efficiency gain. A carbon tax increases price to consumers and industries. Prices of coal, petroleum products, and manufactured gas increase as a sales tax is imposed on each of them. Subsequently, the electricity and transportation sectors are affected the most. Indonesia Malaysia Philippines Singapore Thailand Vietnam Coal Petroleum Products Manufactured Gas Electricity Transportation

20 Value Added Change* * - USD 10 per ton of CO 2 emission without energy use efficiency gain.

21 Household Expenditure Change* * - USD 10 per ton of CO 2 emission without energy use efficiency gain.

22 Real GDP Change * 1. Indonesia and Malaysia can benefit from implementing a carbon tax. 2. Not so clear for Philippines, Singapore, and Thailand. They stand to lose a little but can also gain much if there is oil use efficiency. 3. Vietnam stands to lose the most without oil use efficiency. * - USD 10 per ton of CO 2 emission.

23 CO 2 Emission Reduction * 1. A USD 10 carbon tax can reduce CO 2 emission. 2. Energy use efficiency gain helps to reduce further CO 2 emission. It does not induce rebound effect. 3. Different recycling mechanisms do not yield significantly different results, except for Vietnam. * - USD 10 per ton of CO 2 emission.

24 The Case of Indonesia 1 CO 2 emission reduction and real GDP do not change significantly in symmetric and asymmetric simulations. Malaysia and Singapore are slightly more affected than others. Slight differences in CO 2 emission and real GDP changes are due to trade. Coordination is not an issue for Indonesia in terms of implementing a carbon tax. There is no significant difference in the three recycling mechanisms; Indonesia should choose the most acceptable option, i.e. through household. CO 2 Emission Real GDP % Change % Change Symmetric Asymmetric Symmetric Asymmetric Government Indonesia Malaysia * Philippines 2.99 * 0.04 * Singapore Thailand 2.38 * 0.14 * Vietnam 6.29 * 0.33 * w/ Household Indonesia Malaysia * Philippines 2.82 * 0.03 * Singapore Thailand 2.08 * 0.08 * Vietnam 5.77 * 0.22 * w/ Industry Indonesia Malaysia * Philippines 3.35 * 0.05 * Singapore Thailand 2.49 * 0.14 * Vietnam 3.67 * 0.22 * * - negligible value 1 - USD 10 per ton of CO 2 emission without coal use efficiency gain.

25 Conclusions Carbon tax is an effective mechanism to reduce CO 2 emission: Practical for developing countries. No much indication of rebound effect: Greater environmental improvement can be achieved from energy use efficiency. A carbon tax sufficiently dampens the rebound effect from the increased energy efficiency. Recycling to obtain double dividend hypothesis: Not always the case in obtaining double dividend. Only evident in Indonesia and Malaysia due to existing fuels subsidy. A higher carbon price at USD 20 carbon price could be considered (Frankhauser, 1992). Is choosing which recycling mechanism to use important? Economically and environmentally, no. Politically, yes. Feasibility and acceptability must be considered. Fine tuning for key industrial sectors may also be considered.

26 Conclusions Improving energy efficiency should be a complementary policy: Promoting research and development in energy use; renewable/cleaner energy sources; and public awareness. Cliché, but necessary and effective. Energy use efficiency may stimulate the economy, but not a panacea. Caveat: rebound effect may still occur if not coupled with a carbon tax. Cases for winner or loser : Indonesia and Malaysia could potentially be the winner. Vietnam could potentially be the loser. Not so clear for Philippines, Singapore, and Thailand. Indonesia to move alone: Could do so, coordination with others does not really matter. Domestic policy and consideration are more important, e.g. recycling policy.

27 Thank you