I. Introduction: Country Difference. C0_2 Emission 2005, country differences

Transcription

1 Growth, Climate Change and Mitigation Policies: The Case for A Carbon Tax Alfred Greiner (Bielefeld University), Lars Grüne (Bayreuth University), Willi Semmler (New School for Social Research), Helmut Maurer (University of Münster), Stefan Mittnik (University of Munich) I. Introduction II. The Canonical Model: Nordhaus III. Extension 1: Slow Feedbacks Extension 2: Household`s Welfare IV. Extension 3: Output and Employment Effects of a Carbon Tax (three sector model) V. Conclusions

2 I. Introduction: Country Difference C0_2 Emission 2005, country differences

3 I. Introduction: Country Differences Cumulative C0_2 emission, since 1950 (Posner and Weissbach, 2010)

4 I. Introduction: Country Differences Cumulative C0_2 emission, since 1751 (Hansen, 2010), should this be taken as basis for carbon tax? (see Uzawa, 2009)

5 II. The Canonical Model: Nordhaus Cumulative CO_2 emission, growth and temperature: The canonical model

6 II. The Canonical Model: Nordhaus Scenarios of climate policies

7 II. The Canonical Model: Nordhaus Abatement efforts Emission control rates for different scenarios

8 II. The Canonical Model: Nordhaus Carbon price for the different scenarios:

9 III. Extension 1: Slow Feedback and Tipping Point? Hansen et al. (2008); Slow Feedbacks, Keller et al. (2008); Tipping points

10 III. Extension 1: Specific Features of Our Model: Fast and slow feedbacks Temperature: Concentration of CO_2: Capital stock:

11 III. Extension1: Specific Features of Our Model; slow feedbacks (Hansen et al. 2008) Temperature feedback: albedo;

12 III. Extension 1: Slow Feedback and Tipping Point? Including slow feedbacks into Nordhaus scenario 1: A=0.0012, with low abatement effort there are multiple equilibria and a tipping point (BAU too dangerous)

13 III. Extension 1: Slow Feedback and Tipping Point? Nordhaus scenario 1: A= (low emission control); End results depend on initial conditions (green plane)

14 III. Extension 1: Slow Feedback and Tipping Point? Nordhaus scenario 2: When A is endogenous (emission control optimal, with MC=MB, steady state value A*= , there is a unique steady state)

15 III. Extension 1: Slow Feedback and Tipping Point? Nordhaus Scenario 2: Endogenous A*= (Unique steady state), 0.4 C above 1900 (15 C)

16 III. Extension 2: Effects of global warming on households` welfare Instead of using no feedback of temperature on the households` welfare: We assume:

17 III. Extension 2: Effects of global warming on households` welfare (Controls: C, A; States: K,M,T; welfare ) Temperature impact on households` welfare: costal flooding, heat waves, droughts, environmental damages=> impact on health and living conditions, Temperature: 15.5 C

18 III. Extension 2: Effects of global warming on households` welfare (Controls: C, A; States: K,M,T; welfare ) Temperature impact on households` welfare: costal flooding, heat waves, droughts, environmental damages=> impact on health and living conditions, Temperature: 15.5 C

19 III. Extension 2: Effects of global warming on households` welfare (Controls: C, A; States: K,M,T; welfare ) Temperature impact on households` welfare: costal flooding, heat waves, droughts, environmental damages=> impact on health and living conditions, Temperature: 15.5 C

20 IV. Extension 3: Employment Effects of Mitigation Policies (Three sector model) (ILO study with Stefan Mittnik, Mika Kato, Daniel Samaan) We study employment effects of mitigation policies (carbon tax) In a three sector model, we consider 1) preferences, 2) carbon tax and subsidies, 3) Carbon tax and wage subsidies Preferences st. We estimate 2) and 3) with double sided VAR, I report here results to 2)

21 IV. Extension 3: Employment Effects of a Carbon Tax Case 2) carbon tax: or carbon tax and subsidies: st.

22 IV. Extension 3: Employment Effects German Input-output table (1995), median as cut-off point, direct and indirect emission, HCSI 90% of emission # Sector Dir. Tot. Sector Sector 1 Supply of Electricity and Heat H H 2 Electricity and Gas H H 3 Other Air transport H H 4 Coke, refined petroleum and nuclear fuel H H 5 Basic metals H H 6 Fabricated metal H H 7 Foundry products H H 8 Glass and glass products H H 9 Other non metallic minerals H H 10 Other mining and quarrying H H ( ) 54 Electrical machinery and apparatus, nec L L 55 Medical, precision and optical instruments L L 56 Recreational, cultural and sporting activities L L 57 Other business activities L L 58 Computer and related activities L L 59 Post and telecommunications L L 60 Other service activities L L 61 Insurance and pension funding, except compulsory soc L L 62 Financial intermediation, except insurance and pension L L 63 Leather, leather and footwear L L 64 Office, accounting and computing machinery L L 65 Wearing Apparel, Dressing And Dying Of Fur L H 66 Renting of machinery and equipment L L 67 Activities related to financial intermediation L L 68 Real estate activities L L ( )

23 IV. Extension 3: Employment Effects of a Carbon Tax 60.00% Output Shares Germany, % 50.00% Output Share HCIS Output Share LCIS 45.00% 40.00% 35.00%

24 IV. Extension 3: Employment Effects of a Carbon Tax 60.00% Employment Shares Germany, % 50.00% Employment Share HCIS Employment Share LCIS 45.00% 40.00% 35.00%

25 IV. Extension 3: Employment Effects of a Carbon Tax VAR Analysis consists of several steps (for 9 countries): 1. For each country we estimate the joint dynamic process of output and employment both in HCIS and LCIS for each country We estimate a first order VAR of the Form:

26 IV. Extension 3: Employment Effects of a Budget Neutral Policies (carbon tax and subsidy) 2. Impulse response analysis (IRA): Investigate how the variables of the system respond to individual shocks and to double sided shocks VAR (tax on high intensity industries and subsidies low intensity industries-- effects of composite shocks). ~ y y ( X x ) y ( X), k 0,1,... i t k t k For double sided shocks, for example for Germany: 1% negative shock on HCIS output growth (e.g., for Germany: 18.3 billion Euro tax on HCIS) Subsidy of equal size (18.3 billion Euro) to LCIS (amounts to positive LCIS output shock of +0.79%) By design a budget-neutral intervention i t t k

27 IV. Extension 3: Employment Effects of a Budget Neutral Policies (carbon tax and subsidy) Employment and output effects

28 IV. Extension 3: Employment Effects of Budget Neutral Mitigation Policies (carbon tax and subsidy) 3. Analyze cumulative responses to policy measures over time: Effects after 5 years HCIS Employm Growth LCIS Employm Growth EMPLOYMENT HCIS Absolute Employm Effects LCIS Absolute Employm Effects TOT Absolute Employm Effects HCIS Output Growth Effects OUTPUT LCIS Output Growth Effects TOT Output Growth Effects Germany 0.52% 0.51% 110,445 94, , % 0.78% 0.01% USA 0.26% 0.69% 228, , , % 0.01% 1.19% Japan 0.21% 0.99% 75, , , % 2.85% 1.71% United Kingdom 0.11% 0.51% 17,424 74,973 92, % 0.35% 0.59% Sweden 0.16% 0.04% 4, , % 0.85% 0.17% South Korea 0.07% 0.83% 9,260 70,279 79, % 0.38% 0.44% France 0.33% 1.48% 45, , , % 0.66% 1.74% Australia 1.49% 0.49% 90,156 14, , % 1.68% 0.94% Hungary 0.49% 1.23% 11,340 21,438 32, % 1.59% 0.46%

29 V. Conclusions Given the slow feedbacks, cumulative CO_2 (M) may move us beyond the tipping points. With our method (DP) we can compute thresholds and tipping points. An abatement effort of A= (emission control) is too low. Only a sufficiently high emission control (A*= , optimal) moves us back to 1900 temperature We also explore the role of the time horizon: The time horizon does not matter significantly (for constraints on E<E* and T<T* similarities in the outcomes for infinite and finite horizon): We also explore the feedbacks from temperature, T, to welfare (lowers M, K and T), emission control should be higher Nordhaus presents reasonable scenarios, but given the cumulative C0_2 since 1900 (in particular since 1970), there are perils with BAU

30 V. Conclusions We empirically study the employment and output effects of mitigation policies in a three sector model: 1) for carbon tax only, 2) for carbon tax and wage subsidies and 3) for budget neutral mitigation - slight net effects in terms of employment in 7 out of 9 countries As to the question of fairness of mitigation policies: Given the fact that the cumulative CO_2 emission is so unequal, the Uzawa proposal of proportional tax across countries and an atmospheric stabilization fund seems to us the most reasonable solution. It is also consistent with our three sector model, since low carbon intensity sectors are in developing countries. They would receive subsidies, according to our double sided VAR.

31 The Uzawa Proportional Carbon Tax

32 Some Stylized Facts Growth and climate change (1889 to 2005), see Francis and Ramey (2005); Some facts on US growth: Growth rates: roughly 2% per year, since 1880s Productivity: (Y/L)_1889 = 1 => (Y/L)_2005 = 15 Population: L_1889 = 1 => L_2005 = 6.5 Capital stock: (K/L)_1889 => (K/L) = 15 Total output: ~21.5 times higher Cars, refrigerators, energy use: 15 times higher per person (plus 6.5 time higher from population growth) Energy Intensity and emission per unit of energy: 1/3 per unit of output of 1889 total increase of energy use per person by a factor of 5 Cumulative CO_2 emission?

33 Papers available at:

34 On Extension 1: Slow Feedback and Tipping Point? Temperature feedback; albedo:

35 Worldwide Cumulative Emission Since 1970: CO_2 emission, increase by 85%, roughly the same as Y/L (IPCC), Cumulative CO_2 emission???

36 Impacts will vary by extent of adaptation, rate of temperature change, and socio-economic pathway

37 Remark - Does lower consumption help? Constraints on consumption: C=constant (small)