Uniform Standard or Emissions Trading? Efficient coverage of installations in a GHG Emission Trading Scheme

Transcription

1 Unform Standard or Emssons Tradng? Effcent coverage of nstallatons n a GHG Emsson Tradng Scheme Authors: Regna Betz (UNSW) Todd Sanderson, Tho Ancev (Unversty of Sydney) EAERE 2009, 26th of June 2009, Amsterdam Core Message Coverng all pollutng sources n an emssons tradng scheme may not be effcent! Target s relevant Transacton costs have to be taken nto account 2

2 Motvaton Emssons tradng schemes are desgner markets and polcy makers have to choose the coverage Australa, US and other countres are preparng to ntroduce emssons tradng schemes Theory suggests: A broader coverage wll most lkely ncrease heterogenety of abatement costs and ncrease effcency gans from tradng Lack of theoretcal and emprcal analyss n ths area, decson on coverage seem manly polcy drven Lessons from EU Emssons tradng Scheme coverage 3 EU Emsson tradng system Cap and trade Started n 2005, current phase (Phase II = Kyoto phase), Phase III ( ) Covers around 2,000 nstallatons from power generaton & selected ndustres (only downstream), 2,083 Mt CO 2 e

3 EU Coverage Annex I of the EU Drectve: Energy actvtes Combuston nstallatons rated thermal nput > 20 MW (except hazardous or muncpal waste nstallatons) Mneral ol refneres Coke ovens Producton and processng of ferrous metals: metal ore roastng or snterng nstallatons, pg ron or steel ncludng contnuous castng (>2.5 t/h) Mneral ndustry: cement clnker (producton capacty > 500 t/d), lme (> 50 t/d), glass (> 20 t/d), ceramc products (> 75 t/d, and/or kln capacty >4 m 3, settng densty per kln > 300 kg/m 3 ) Industral plants for the producton of pulp and paper (>20 t/d) Some countres ( France and Netherlands) nclude other gases and sources e.g. N 2 O 5 Emssons Installatons relaton Unequal dstrbuton: 50 % of the nstallatons covered emtted less than.4 % of the total emssons n 2005 Accumulated share of emssons Austra Belgum Czech Republc Denmark Estona Fnland France Germany Greece Hungary Ireland Italy Latva Lthuana Luxemburg Netherlands Poland Portugal Slovaka Slovena Span Sweden Unted Kngdom EU-23 Share of emssons compared to share of number of nstallatons (Lorenzcurve) Accumulated share of nstallatons Source: Data based on verfed emssons from EU Regstry 3

4 Related lterature Emssons tradng Coase (960) property rght, Crocker (966), Dales (968) develop the dea of emssons tradng n water context Montgomery (972) shows emssons tradng schemes acheve same effcency equlbrum ndependent from allocaton method All abstract from transacton costs Emssons tradng and transacton costs Theoretcal analyss by Stavns (995) shows ntal allocaton affects the fnal equlbrum f margnal transacton costs (tradng costs) are nonconstant Emprcal analyss on transacton costs by Foster and Hahn (995); Dwyer (992) and more recently by Betz (2003) and Jarate et al. (2009) Coverage Some consultancy reports assessng EU Graus and Voogt (2007) 7 Research questons Is broad coverage an effcent approach when takng transacton costs nto account? What s the effcent level of coverage? What are the factors determnng the effcent coverage? 8 4

5 Model ntroducton AIM: acheve an exogenously set cap (C) for a unformly-mxed flow pollutant, such as greenhouse gas emssons, at mnmum cost whch s equal to maxmse net socal benefts Opton : all nstallatons emttng CO2 are to be covered by an Opton 2: some nstallatons are covered by an, and others by a unform emssons standard 9 B Model () Opton (blanket coverage): n ( ) B ( n) = TCR TCR = Opton 2 (effcent coverage): n m n m 2 ( m) = maxtcr ( TCR + TCR ) = max ( TCR TCR m m = = = m+ = m n, and =,, m ) s.t. n n a = e C 0 = = 0 5

6 Model (2) Total Cost of Regulaton (Standard) NR e = ( ) + e TCR MAC e de RC Total Cost of Regulaton () NR e = ( ) + ( 0 ) + e TCR MAC e de p e a RC p ± = p * t Data: Installatons Installaton-level data on verfed emssons and allowance allocatons for 2005 were avalable for the EU Installatons dvded nto 4 dfferent groups for each sector: Small Medum Large Very large 2 6

7 Dfferentaton of nstallatons Small emtter Medum emtter Large emtter Very Large emtter Sector thousand tons of CO 2 emssons Cement and lme Combuston , Glass Iron and steelworks Ol refnng Pulp and paper Data: Abatement costs Data used: De Beer et al., 200 and Hendrcks et al., 200 Costs per tonne of emssons reducton and potental (%) Functonal Form for estmaton of Abatement costs: MAC = A e ( ) A TAC = e A Problem: negatve abatement costs 4 7

8 Abatement costs Small emtter Medum emtter Large emtter Very Large emtter Sector Cement Combuston Iron and steelworks Glass Ol refnng Pulp and paper Transacton costs defnton goes back to Commons (934) and Stgler (972), the latter compares transacton costs to frctons n the physcal world. subsume all costs, e.g. costs of montorng emssons on the sde of the frm, as well as admnstraton costs to the regulator, and also ncludes tradng costs. Other way to defne: all those costs related to an emssons tradng scheme whch are not drectly related to the actual nvestment n abatement (e.g. equpment costs). 6 8

9 Ongong transacton costs Small nstallatons 20 kt emssons Standard Medum nstallatons 20,700 kt Standard Large nstallatons,700 kt Standard Total Regulatory costs In thousand Euros per nstallaton 2 (.05) Total Regulatory costs n k/per kt emssons Tradng Costs4 (Euros / EUA) Fxed membershp fee (thousand Euros per nstallaton) Results 8 Reducton target % per year Total Cost Polcy mllon /year Total Cost Polcy 2 mllon /year % savng % per year Varyng TC estmates and abatement costs showed results are robust Number of nstallatons effcently covered n an Number of nstallatons out of

10 Conclusons Blanket coverage only effcent f strngent reductons Heterogenety n abatement costs does not outwegh small reducton potental due to low baselne emssons Phasng n sectors over tme when targets get more strngent as n New Zealand bll s more effcent Transacton costs are hgh and dffcult to reduce much especally for small emtters snce some costs are fxed costs, therefore small emtters are more effcently covered by standard EU Phase 3 wll make changes: ntroducton of an addtonal emsson threshold of 0,000 tons of CO2 equvalent per year (excludng emssons from bomass) f thermal nput does not exceed 25 megawatts Leavng nstallatons uncovered may cause perverse ncentves, therefore not recommended 9 Thank you very much for your attenton! Emal: r.betz@unsw.edu.au All papers can be downloaded from:

11 Comments How can you explan the prce development (low prce at the end)? How can we show market power n permt market? How can we ensure that permt market become more effcent? Eshel (2005) Journal of Regulatory Economcs, 28:2, p to maxmze socal welfare, the allocaton of rghts among agents should balance the margnal neffcency n the market for rghts, weghted by the effect of the allocaton on the volume of rghts traded, wth the margnal neffcency n the product market, weghted by the effect of the allocaton on the volume of output traded. To do so we need nformaton about the volume of rghts traded by regulated frms and the relatve power of the frms n the product market and n the market for rghts. 2 EU permt prce development 22