Industrial Policy for Climate Change Mitigation

Transcription

1 Industrial Policy for Climate Change Mitigation Weak and Strong Sustainability Assessment in Fisheries Christoph Böhringer*, Xaquín García-Muros #, Iñaki Arto # & Ignacio Cazcarro # *University of Oldenburg, # Basque Centre for Climate Change (BC3) Deusto, Bilbao Presentation at the 2016 Symposium "Energy and Environmental Policy" February 2, 2016, Barcelona (Science Park)

2 1. Policy Background 21 st Conference of Parties (COP21): Paris agreement negotiated at the 21st Conference of Parties (COP21) with policy consensus on temperature increase <2 degrees. Agreement builds on voluntary pledges of individual countries - intended nationally determined contributions (INDCs). Industrialized countries lead the way with stringent emission controls: Threat of competitiveness losses in emission-intensive and trade-exposed (EITE) industries which face higher regulatory cost compared to international rivals. Emission leakage:the global cost-effectiveness of stringent emission controls in industrialized countries is hampered by the relocation of EITE industries and their emissions to parts of the world economy subject to no (or weaker) regulation.

3 1. Research Objective Both concerns have fostered the climate policy debate in industrialized countries on appropriate protective measures for EITE industries. In this paper we cross-compare the economic implications of five alternative protective measures for EITE industries: (i) Tariffs on the embodied carbon of EITE imports from non-regulated countries, (ii) Full border carbon adjustment (tariffs and rebates), (iii) Output-based emission allocation, (iv) Exemptions of EITE industries from emission pricing, and (v) Imposition of energy- or carbon intensity standards on EITE industries. We focus our analysis on the following key indicators: - Leakage - Sector-specific output - Sector-specific competitiveness (RCA, RWS) - Consumption welfare (Hicksian equivalent variation in income)

4 1. Research Value-Added Literature overview: Bollen et al., 2003; Klepper and Peterson,2004; COWI, 2004; Reinaud, 2005; Peterson, 2006; Böhringer and Alexeeva-Talebi, 2012: Focus on competitiveness effects associated with the implementation of the EU ETS. Holland,2012; Antimiani et al., 2013; Böhringer et al. 2012/2014/2015 Focus on protective measures to reduce emission leakage. Our contribution: a) More refined treatment of EITE sectors based on sector-at-risk criteria of the EU ETS Directive (Article 10a). b) Focus on competitiveness effects of various protective industry-specific measures. c) Trade-off analysis across key indicators.

5 2. Sectors at Risk of Carbon Leakage ETS Directive (Article 10a) Additional costs (AC): AC = DCo2 AF + ICo2 EUA GVA DCo2 = Direct emissions of CO 2 EUA = Expected emission price in 2020 AF = Amount of auctioned emissions (%) GVA = Gross value added at factor costs ICO2 = Indirect emissions of CO 2 Trade intensity (TI): TI = (X + M) (Y + M) X = Export M = Imports Y = Output

6 2. Sectors at Risk of Carbon Leakage ETS Directive (Article 10a) Key criteria ETS Directive (Article 10a) Additional costs (AC) Trade intensity (TI) 1 >5% >10% 2 >30% >30% List of sectors* at risk in GTAP9 database: Petroleum and coal products (Oil)* Mineral products (NMM) Air transport (ATP)* Machinery and equipment (OME) Chemical, rubber, plastic products (CRP) Minerals (OMN) Electronic equipment (EEQ)* Transport equipment (OTN)* Ferrous metals (I_S) Water transport (WTP)* Leather products (LEA)* Trade-intensive agricultural products (TIA) Metals (NFM)* Trade-intensive manufactured products (TIM)

7 Trade Intensity (%) 2. EITE Sectors: Trade Intensity and Additional Costs omn EEQ otn ome crp lea nfm atp TIM TIA nmm i_s wtp oil Additional costs (%) Petroleum and coal products (OIL) Mineral products (NMM) Air transport (ATP) Machinery and equipment (OME) Chemical, rubber, plastic products (CRP) Minerals (OMN) Electronic equipment (EEQ) Transport equipment (OTN) Ferrous metals (I_S) Water transport (WTP) Leather products (LEA) Trade-intensive agricultural products (TIA) Metals (NFM) Trade-intensive manufactured products (TIM)

8 Embodied carbon metrics (in ton of CO2 per USD) 2. EITE Sectors: CO 2 Emissions by Sector and Region ele nmm i_s COL nfm atp ele nmm i_s COL nfm atp ele nmm i_s COL nfm atp ele nmm i_s COL nfm atp CHN EEX EUR NAM CHN: China NAM: North America (USA + Canada) EEX: Oil exporting regions (OPEC + Russia) EUR: Europe 28 Air transport (ATP) Coal (COL) Electricity (ELE) Ferrous metals (I_S) Metals (NFM) Mineral products (NMM)

9 3. Analytical Framework MODEL: Computable General Equilibrium (CGE) We use a standard multi-sector, multi-region static CGE model of global trade and energy use. DATA and CALIBRATION We use GTAP 9 dataset which includes detailed national input-output data, bilateral trade information, energy flows, and CO 2 emissions for 140 regions and 57 sectors (base-year: 2011). ELASTICITIES Value-added substitution elasticities: GTAP9 Trade (Armington) elasticities: GTAP9 Inter-fuel substitution elasticities: Steinbuks and Narayanan (2014). Fossil fuel supply elasticities: Graham, Thorpe and Hogan (1999), Krichene (2002)

10 3. Diagrammatic Model Structure RA r = Representative agent in region r Y ir = Production of good i in region r L r = Labor in region r C ir = Consumption demand for good i in region r K r = Capital in region r A ir = Armington production of good i Q ff,r = Specific resources (used for the production of fossil fuels ff) M ir = Imports of good i from region r

11 3. Competitiveness Metrics Revealed Comparative Advantage (RCA): RCA ir = X ir Mir i X ir i M ir Relative World Trade Shares (RWS): RWS ir = X ir i X ir r X ir i r X ir X ir = Export of sector i in region r M ir = Imports of sector i in region r

12 4. Scenarios Reference scenario (ref): CO2 emission price The emission reduction target (20%) is achieved through uniform CO 2 emission pricing across all segments of the economy. The CO 2 price is either derived as the shadow price of a domestic emission trading system where the cap is set at 80% of the base year emissions; or, the price is given by a CO 2 emission tax set sufficiently high to achieve the 20% emission reduction. Protective measures for EITE industries Intensity standards: ess: Energy sectoral standard ets: Energy tradable standard css: Carbon sectoral standard cts: Carbon tradable standard Other measures: trf: Border tariff on embodied emissions of energy* bca: Border carbon adjustment oba: Output-based emission allocation exe: Exemptions of EITE sectors *direct emissions plus indirect emissions from electricity Features exe trf bca oba Standards Uniform pricing of carbon no yes yes yes no/yes Coverage of traded carbon No yes (only imports) yes no no Output subsidy no no export rebate yes yes

13 Carbon leakage in % 5. Leakage Carbon leakage in % exe trf bca oba css ess cts ets Protective measures Ref Scenario 10

14 Output change in % Output change in % 5. Output impacts (%) Output change in % Output change in % exe trf bca oba css ess cts ets EITE Ref EITE exe trf bca oba css ess cts ets NON_EITE Ref Non-EITE

15 RWS in % RWS in % RCA in % RCA in % 5. EITE competitiveness effects (%): RCA and RWS exe trf bca oba css ess cts ets Protective measures Rca Ref Rca exe trf bca oba css ess cts ets Protective measures Rws Ref Rwa

16 RCA in % RWS in % 5. Non-EITE competitiveness effects (%): RCA and RWS RCA in % RWS in % exe trf bca oba css ess cts ets Protective measures Rca Ref Rca exe trf bca oba css ess cts ets Protective measures Rws Ref Rwa -0.10

17 Welfare (consumption) change in % 5. Welfare impacts by scenario (%) Welfare (consumption) change in % 0 exe trf bca oba css ess cts ets Protective measures Ref -1.2

18 6. CONCLUSIONS Border measures (tariffs or tariffs+rebate) perform best in preserving EITE competitiveness while delivering at the same time substantial terms-of-trade gains. Standards in particular if levied at the sectoral level (being nontradable) are rather ineffective in attenuating output losses and could be costly from an economy-wide perspective. Exemptions perform even worse than standards with a pronounced burden shifting to non-eite industries. OBA appear as a decent compromise if border measures are considered as politically contentious. Indicators for competitiveness such as output, RCA, or RWS may not show consistent results.

19 Moltes Gràcies! Industrial Policy for Climate Change Mitigation Christoph Böhringer, Xaquín García-Muros, Iñaki Arto & Ignacio Cazcarro

20 References Antimiani, A., Costantini, V., Martini, C., Salvatici, L., and Tommasino, M.C. (2013). Assessing alternative solutions to carbon leakage. Energy Econ. 36, Bollen, J., H. de Groot, T. Manders and P. Tang (2003), The Kyoto Protocol and EU competitiveness, Paper prepared for the 6th GTAP Conference, June 12-14, the Hague, the Netherlands. Böhringer, C., Carbone, J. C., and Rutherford, T.F. (2012). Unilateral climate policy design: Efficiency and equity implications of alternative instruments to reduce carbon leakage. Energy Economics 34 S208 S217 Böhringer, C., Alexeeva-Talebi, V., Unilateral climate policy and competitiveness: economic implications of differential emission pricing. World Econ. Böhringer, C., Fischer, C., and Rosendahl, K.E. (2014). Cost-effective unilateral climate policy design: Size matters. J. Environ. Econ. Manag. 67, Böhringer, C., Garcia-Muros, X., Gonzalez-Eguino, M. and Rey, L. (2015). US Climate Policy: A Critical Assessment of Intensity Standards. Working Paper (in revision). Holland, S. P. (2012). Emissions taxes versus intensity standards: Second-best environmental policies with incomplete regulation. Journal of Environmental Economics and Management, 63(3), COWI (2004), Competitiveness and EU Climate Change Policy, Interim Report produced by COWI for UNICE, Copenhagen Klepper, G. and S. Peterson (2004), The EU Emissions Trading Scheme, Allowance Prices, Trade Flows, Competitiveness Effects, European Environment 14, Peterson, S. (2003), The EU Emissions Trading Scheme and its Competitiveness Effects for European Business - Results from the CGE Model DART, Paper presented at the international Workshop "Business & Emissions Trading" in Wittenberg, Germany, November 11th 14th Reinaud, J. (2005), Industrial Competitiveness under the European Union Emissions Trading Scheme, IAE Information Paper, Paris.

21 Embodied carbon (in ton of CO 2 per USD) 2. EITE Sectors: Decomposition of CO 2 Emissions atp wtp i_s nmm nfm omn crp oil TIM EEQ otn TIA ome lea Direct Ind_Domestic Ind_Imported Petroleum and coal products (OIL) Air transport (ATP) Chemical, rubber, plastic products (CRP) Electronic equipment (EEQ) Ferrous metals (I_S) Leather products (LEA) Metals (NFM) Mineral products (NMM) Machinery and equipment (OME) Minerals (OMN) Transport equipment (OTN) Water transport (WTP) Trade-intensive agricultural products (TIA) Trade-intensive manufactured products (TIM)

22 Billion USD 2. EITE Sectors: Domestic and Export Supply TIM ome crp TIA oil EEQ i_s nmm otn wtp atp nfm lea omn Domestic supply Export Petroleum and coal products (OIL) Mineral products (NMM) Air transport (ATP) Machinery and equipment (OME) Chemical, rubber, plastic products (CRP) Minerals (OMN) Electronic equipment (EEQ) Transport equipment (OTN) Ferrous metals (I_S) Water transport (WTP) Leather products (LEA) Trade-intensive agricultural products (TIA) Metals (NFM) Trade-intensive manufactured products (TIM)

23 Share of export supply (% of total supply) 2. EITE Sectors: Indirect Imported Carbon Content and Export Supply 35.0 atp 30.0 nfm crp ome otn 25.0 EEQ omn 20.0 TIM lea i_s 15.0 wtp TIA 10.0 oil nmm Share of "Indirect Imported" carbon content (% of total carbon content) Petroleum and coal products (OIL) Air transport (ATP) Chemical, rubber, plastic products (CRP) Electronic equipment (EEQ) Ferrous metals (I_S) Leather products (LEA) Metals (NFM) Mineral products (NMM) Machinery and equipment (OME) Minerals (OMN) Transport equipment (OTN) Water transport (WTP) Trade-intensive agricultural products (TIA) Trade-intensive manufactured products (TIM)

24 2. MRIO Calculus (1) Y cc Y co2e gr gr gr ii cc M ir Z M igr ii cc Y ir Z D igr (2) cc M ir M ir sr cc Y is X isr jj cc T j T jisr (3) cc T j rr T jr rr cc Y jr T jr cc = carbon content of output M Y gr cc ir = carbon content of imports; T cc j = carbon content transport Z D M Z igr domestic int. inputs; igr imported int. inputs; ir imports; isr exports; jr transport; M X T

25 3. Model Structure Production in non-resource sectors p D p EX p p TRN p KLEM p A ATP p A WTP p A OTP p KLE p MAT p KL p E p A j p K p L p FF p ELE p LQ p A COA p CARB p A OIL p CARB p A GAS p CARB D domestic; EX export; TRN transport aggregate; KLEM value-adde, energy and material aggregate; KLE value-added and energy aggregate; KL value-added aggregate; MAT material aggregate; FF fossil fuel aggregate; LQ oil and gas aggregate; A Armington aggregate; E energy aggregate; ATP air transport; WTP water transport; OTP other transport; COA coal; OIL refined oil products; GAS gas extraction, manufacture and distribution; ELE electricity;

26 RCA in % from Bau RCA in % from Bau RCA in % from Bau 5. EITE Sectors with Highest Competitiveness Losses (RCA in %) Air transport (ATP) Water transport (WTP) exe trf bca oba css ess cts ets -10 exe trf bca oba css ess cts ets Measures Ref Measures Ref Mineral products (NMM) Measures Ref -6 exe trf bca oba css ess cts ets