The Effects of Domestic Climate Change Measures on International Competitiveness

Transcription

1 Publc Dsclosure Auhorzed Publc Dsclosure Auhorzed Publc Dsclosure Auhorzed Publc Dsclosure Auhorzed Polcy Research Workng Paper 5309 The Effecs of Domesc Clmae Change Measures on Inernaonal Compeveness The World Bank Developmen Research Group Trade and Inegraon Team & Envronmen Deparmen May 2010 Hau Loo Kee Hong Ma Muhukumara Man WPS5309

2 Polcy Research Workng Paper 5309 Absrac Under he Kyoo Proocol, ndusralzed counres (called Annex I counres) have o reduce her combned emssons o 5 percen below 1990 levels n he frs commmen perod of Effors o reduce emssons o mee Kyoo arges and beyond have rased ssues of compeveness n counres ha are mplemenng hese polces, as well as fear of leakage of carbon-nensve ndusres o non-mplemenng counres. Ths has also led o proposals for arff or border ax adjusmens o offse any adverse mpac of cappng carbon doxde emssons. Ths paper examnes he mplcaons of clmae change polces such as carbon ax and energy effcency sandards on compeveness across ndusres, as well as ssues relaed o leakage, f any, of carbon-nensve ndusres o developng counres. Alhough compeveness ssues have been much debaed n he conex of carbon axaon polces, he sudy fnds no evdence ha he energy nensve ndusres compeveness s affeced by carbon axes. In fac, he analyss suggess ha expors of mos energy-nensve ndusres ncrease when a carbon ax s mposed by he exporng counres, or by boh mporng and exporng counres. Ths fndng gves credence o he nal assumpon ha recyclng he axes back o he energy-nensve ndusres by means of subsdes and exempons may be overcompensang for he dsadvanage o hose ndusres. There s, however, no conclusve evdence ha suppors relocaon (leakage) of carbon-nensve ndusres o developng counres due o srngen clmae change polces. Ths paper a produc of he Trade and Inegraon Team, Developmen Research Group and Envronmen Deparmen s par of a larger effor n he deparmen o sudy he rade mpac of he clmae change measures on rade. Polcy Research Workng Papers are also posed on he Web a hp://econ.worldbank.org. The auhor may be conaced a hlkee@worldbank.org. The Polcy Research Workng Paper Seres dssemnaes he fndngs of work n progress o encourage he exchange of deas abou developmen ssues. An objecve of he seres s o ge he fndngs ou quckly, even f he presenaons are less han fully polshed. The papers carry he names of he auhors and should be ced accordngly. The fndngs, nerpreaons, and conclusons expressed n hs paper are enrely hose of he auhors. They do no necessarly represen he vews of he Inernaonal Bank for Reconsrucon and Developmen/World Bank and s afflaed organzaons, or hose of he Execuve Drecors of he World Bank or he governmens hey represen. Produced by he Research Suppor Team

3 The Effecs of Domesc Clmae Change Measures on Inernaonal Hau Loo Kee*, Hong Ma % and Muhukumara Man + JEL: F13, F18, Q56 Keywords: Carbon ax, energy effcency sandard, rade compeveness, gravy We hank Aadya Maoo for commens. Research fundng from he World Bank s cordally acknowledge. The fndngs, nerpreaons, and conclusons expressed n hs paper are enrely hose of ours, and do no necessarly reflec he vews of he World Bank, s Execuve Drecors, or he counres hey represen. * Correspondng auhor. Developmen Research Group, The World Bank, Washngon, DC 20433, USA; Tel. (1-202) ; Fax: (1-202) ; e-mal: hlkee@worldbank.org % Deparmen of Economcs, SEM, Tsnghua Unversy, Bejng, , Chna; Tel. (86-10) ; e-mal: mahong@sem.snghua.edu.cn + The World Bank. Tel. (91-11) ; E-mal: mman@worldbank.org.

4 1. Inroducon There s a wde-spread concern among he counres ha have underaken measures o reduce greenhouse gas (GHG) emssons ha hs wll adversely affec he nernaonal compeveness of her major ndusres, especally n he energy nensve secor. Indusry groups especally worry ha hgher energy coss no only burden hem domescally, bu also gve compeors n counres ha do no have hese measures (especally he U.S., Chna, ec.) a compeve edge and an unfar advanage. Ths has also aken a polcal dmenson wh he dea of a Kyoo Tax agans non-complyng counres beng echoed by many, ncludng he French Presden and Prme Mnser. There are also proposals n he US Congress ha would requre purchases of greenhouse gas emsson allowances n order for mpored goods o be allowed o ener from counres ha are no makng sasfacory effors o mgae greenhouse gas emssons. 1 Ths paper examnes wheher he compeveness of counres mplemenng clmae change measures has suffered as a resul of he mplemenaon of carbon ax, or oher regulaory measures mplemened for GHG emssons reducon. Specfcally, he paper focuses on wo ypes of nsrumens, namely, carbon axes and energy effcency sandards. Whle boh measures am o reduce GHG emssons by reducng energy consumpon, hey use very dfferen mechansms. Carbon axes focus on he carbon emssons durng he producon process whch dsproporonaely 1 Two of he many legslave proposals nroduced durng 2007 are relevan. One s Senae bll 1766, nroduced by Senaors Bngaman and Specer; he oher s Senae bll 2191, nroduced by Senaors Leberman and Warner. 2

5 affecs hose energy nensve ndusres. On he oher hand, energy effcency sandards se energy consumpon sandards on ndusral producs, whch could be consdered as a cosly produc qualy upgrade ha pushes ndusres o manufacure beer oupu a a hgher cos. We use a sandard gravy model n rade o sudy he effecs of hese wo measures on expors. Focusng on he OECD counres, he sudy fnds no evdence ha ndusres compeveness s affeced by carbon axes. In fac, he analyss suggess ha expors of mos energy-nensve ndusres ncrease when a carbon ax s mposed by he exporng counres, or by boh mporng and exporng counres. Ths fndng gves credence o he general assumpon ha governmens ofen recycle he axes back o he energy-nensve ndusres by means of subsdes and exempons and may n fac be overcompensang for he dsadvanage o hose ndusres. 2 A closer examnaon of specfc energy-nensve ndusres n OECD counres shows ha only n he case of he cemen ndusry has he mposon of a carbon ax by he exporng counry adversely affeced rade. In he case of he paper ndusry, rade acually ncreases as a resul of a carbon ax. On he oher hand, energy effcency sandards are found o have negave effecs on rade, when hey are requred by eher he mporng counry, or he exporng counry, or boh. The paper proceeds as follows. In secon 2, we presen he emprcal specfcaons ha underpn our economerc work. We dscuss daa n secon 3 and 2 Maoo e al. (2010) fnd, usng a CGE model raher han an economerc approach, ha a carbon ax would affec he compeveness of energy nensve ndusres n ndusral counres bu only o a lmed exen. 3

6 presen he resuls n secon 4. Secon 5 provdes concludng remarks. 2. Emprcal Specfcaons To sudy he effecs of clmae change measures on expor performance, he sudy uses a sandard gravy model of rade. The basc gravy model as developed by Tnbergen (1962) and Lnnemann (1966) predcs blaeral rade flows based on he economc szes of (ofen usng GDP measuremens) and dsance beween wo uns. Some models nclude, alongsde dsance, he areas of he radng parners (proxy for ranspor cos whn he counry), arff and prce varables, as well as a varey of proxes for closeness beween he radng parners, such as conguy, common language (culural affny), and radng bloc membershp. Ths model s ofen used o examne blaeral rade paerns n search of evdence on naural (non-nsuonal) regonal radng blocs, he esmaon of rade creaon and rade dverson effecs from regonal negraon, and he esmaon of rade poenal for new enrans o a radng bloc. Our emprcal specfcaon follows he fxed effec gravy model n Feensra (2003). For expor of counry o counry j n ndusry k and year, we regress he log of ndusry level blaeral expor beween he wo counres relave o he produc kj exp or of he wo GDP ( ln( ) ), on an exporer fxed effec ( j ), an mporer fxed GDP GDP effec ( ), a year fxed effec ( ), an ndusry fxed effec ( ), he log of dsance j j beween he wo counres ( ln ds ), dummy varables on common borders (border j ), common currency (currency j j ), and common free rade agreemens (FTA ). Usng separae mporng and exporng counry fxed effecs, we are hus able o capure he 4 k

7 mullaeral ressance erms n Anderson and van Wncoop (2003). kj exp or ln( ) GDP GDP j j 1 c1 2 k c2 j 1 ln ds 3 c3 j j 1 2 border j ees1 currency 2 3 ees2 j 3 j ees3 j 4 FTA j Addonally, based on he year he carbon ax s mplemened n a counry, we consruc hree dummy varables ( c, c and 1 2 c 3 ). The frs one s f only he exporng counry has he carbon ax n he year, he second one s f only he mporng counry has he carbon ax n he year, and he hrd one s f boh counres have he carbon ax n he year. The coeffcens of hese carbon ax dummes varables capure he change n expor relave o he baselne scenaro when neher he mporng nor he exporng counres has he carbon ax. Smlarly, based on he year he energy effcency sandard s mplemened n a counry, hree dummy varables ( ees, ees and 1 2 ees 3 ) are consruced o capure he effecs on expor relave o he baselne scenaro when no such sandard s n place. To undersand he separae mpac of carbon axes and energy effcency sandards, we also ry o nroduce he wo ses of dummy varables separaely. Fnally, o sudy he effec of hese clmae measures on some specfc ndusres, we also run he regresson ndusry by ndusry. Noe ha our varables of neress are no ndusry specfc all he carbon axes and energy effcency sandards dummy varables only vary by exporng counres, mporng counres and years. We wll need o cluser he sandard errors of he regresson by exporer-year or mporer-year 5

8 o avod underesmaon of he sandard errors due o macro varable n mcro uns problems. The expeced resuls are gven n Table 1. Table 1 Expeced Effecs of Carbon Taxes and Energy Effcency Sandards on Expors Carbon Tax Carbon ax by an exporng counry Carbon ax by an mporng counry Boh exporng and mporng counres have carbon ax Effecs on ndusry expor Negave Posve Neural or margnal declne n rade Energy Effcency Sandard Energy effcency sandards n he exporng counry Energy effcency sandards n he mporng counry Energy effcency sandards n boh exporng and mporng counry Effecs on ndusry expor Neural or margnally negave Negave Neural or margnal declne n rade 3. Daa The man daa source s he UN Comrade daabase, whch provdes he value of expors a 3 dg ISIC level for all he OECD counres from 1988 o We also oban GDP fgures from he World Developmen Indcaors (World Bank, 2006). The gravy varables such as blaeral dsance beween counry pars, and common border varable are from Nca and Olarreaga (2004). Informaon on carbon axes and energy effcency sandards s obaned from varous naonal sources. Some caveas are n order. Frs, a lmaon of hs analyss s ha clmae change measures, namely carbon axes and energy effcency sandards, are used as dummy varables n hs analyss. They do no reflec he dfferenaed levels of sandards and axes ha are leved n dfferen counres and across he dfferen fuels. 6

9 To hs effec, he resuls need o be nerpreed wh some degree of cauon, as he analyss s unable o provde a drec assessmen of he exen of rade loss or gan from he levels of srngency across counres. Noneheless, by comparng counres wh and whou measures, hey do provde useful nsghs o he dynamcs of clmae change measures on counry compeveness. I s hs ssue ha has domnaed he debaes, no he acual levels. Second, carbon ax values or energy effcency sandards could change wh me even for a gven counry. However, degrees of freedom consrans preven a more dealed examnaon of hs phenomenon. 4. Resuls Table 2 presens he pooled regresson resuls of he varous specfcaons. In Column (1), we pooled all manufacurng ndusres, of all OECD counres n all he sampled years n he regresson. Frs, all he gravy conrol varables, such as blaeral dsance, common border and currency, as well as he FTA dummy varables are of he rgh sgns and are sascally sgnfcan. The magnudes of he coeffcens are also n lne wh he prevous fndngs n he leraure. We only nclude carbon ax dummes n Column (1). The resuls show ha blaeral rade s adversely affeced when only mporng counres mposed he carbon ax. Carbon ax mposed by exporng counres does no seem o maer. Ths could be because mos counres acvely subsdzed or exemped her mos compeve and energy nensve ndusres when carbon axes were mplemened. Column (2) of Table 2 sudes he effecs of he energy effcency sandard on 7

10 rade. Unlke he prevous column, we found srong negave effecs of such requremen on rade flow. I does no maer when he sandard s mposed by exporng counres, mporng counres or boh; blaeral rade always decreases by nearly 10 percen as a resul. Column (3) ncludes boh carbon axes and energy effcency sandards n he regresson, and he resuls are smlar o he frs wo columns ndcang ha hese wo polces do no nerfere wh each oher when come o affecng expor compeveness. Column (4) of Table 2 allows ndusres ha use energy nensvely o have dfferen coeffcens on he carbon ax dummes, by neracng he carbon ax dummes wh ndusry dummes. These ndusres are paper and paper producs (ISIC 341), ndusral chemcals (351), non-meallc producs (369), ron and seel (371) and non-ferrous meal (372). Smlarly, we nerac he energy effcency sandard dummy varables wh hose ndusres whch have producs ha are subjeced o he energy effcency sandard. Such ndusres are meal producs (ISIC 381), machnery (382), elecrcal machnery (383), ranspor equpmen (384), and scenfc equpmen (385). The resuls show ha only when he carbon ax s mposed by he mporng counres do we see he negave effec on rade of he energy nensve ndusres. Expors of energy nensve ndusres acually ncrease when he carbon ax s mposed by he exporng counres or boh mporng and exporng counres. Ths once agan ndcaes ha subsdes and exempon of he exporng counres on hose energy nensve ndusres have overcome he dsadvanage mposed by he carbon 8

11 ax. On he oher hand, a very dfferen pcure appears when we focus on hose ndusres whch produce oupus ha are subjeced o energy effcency sandards. Here he neracon erms are overwhelmngly negave, whch shows ha hese ndusres are adversely affeced by such requremen. These large negave effecs are n addon o he negave effecs ha are common across all manufacurng ndusres. Tables 3 and 4 presen he regresson resuls by ndusres. In hs specfcaon, we do no consran all he coeffcens o be common across all ndusres, whch may yeld addonal nsgh no he ssues. Table 3 focuses on hose ndusres ha use energy nensvely n her producon. These are he ndusres ha should be adversely affeced by he carbon ax. However, as noed before, mos governmens also acvely subsdze or exemp hese ndusres o neuralze such adverse effecs. Therefore we may no be able o denfy he mpac of he carbon ax on hese ndusres. The resuls show ha he carbon ax has negave effecs on he paper and paper producs ndusry (341) and he non-meallc ndusry (369). For he non-meallc ndusry, rade sgnfcanly reduces when only he exporng counry mposes he ax bu rade s no affeced when boh counres mpose he ax. Ths suggess ha a unlaeral domesc clmae measure hurs he expor performance of a counry, whch s he argumen mos governmens use n order o jusfy drec subsdes o hese ndusres o offse he adverse shock of he carbon ax. On he oher hand, for he 9

12 paper and paper producs ndusry, rade acually ncreases f only exporng counres mpose he ax. Ths ndcaes ha he governmens may have overly subsdzed hs ndusry whch causes he expanson n rade. When boh mporng and exporng counres have he carbon ax, nense compeon from he expanson of producon due o subsdes leads o a reducon n rade. Anoher ndusry ha also may have benefed from he carbon ax due o governmen subsdes s he ron and seel ndusry (371), where rade ncreases when only exporng counres mpose he ax. Table 4 focuses on hose ndusres ha produce goods ha use energy nensvely. Here we expec energy effcency sandards o have negave mpacs on rade. The resuls show ha mos of hese ndusres are adversely affeced by he sandard requremen, and he effecs are parcularly srong for he meal producs ndusry (381) and he ranspor equpmen ndusry (384). In boh ndusres, does no maer wheher such sandard requremen was mposed by he exporng counry or he mporng counry or boh; rade s reduced by 20 o 30 percen. Ths resul s n lne wh he pooled regresson presened n Table 1. Perhaps he mos neresng fndng of Table 4 s ha all hese ndusres are adversely affeced by he carbon ax. Blaeral rade, n some cases such as he elecronc ndusry, reduces by as much as 40 percen whch ndcaes ha some hrd counres ha do no have he carbon ax may have benefed from he suaon when boh exporng and mporng counres mposed he ax. Gven ha hese are no he energy nensve ndusres, hey are normally no drecly subsdzed or exemped by he governmens, whch hus provdes he drec evdence ha he carbon ax s rade 10

13 reducng. 5. Conclusons Ths paper provdes economerc evdence suggesng ha domesc clmae change polces may have adverse effecs on nernaonal rade. We focus on wo polces -- carbon axes ha arge hose ndusres ha use energy nensvely, and energy effcency sandards ha affec hose ndusres ha produce oupus ha use energy nensvely. Through a panel of ndusry daa of he OECD counres from 1988 o 2005, hs paper shows ha boh carbon axes and energy effcency sandards have a sascally sgnfcan negave effec on compeveness hrough mpacs on blaeral rade flows (dependng on he model specfcaon). Ths s parcularly rue when he focus s on hose ndusres ha are subjec o hgher energy effcency sandards and are no subsdzed by governmens. Ths adverse effec s mssng when he focus s on energy-nensve ndusres ha usually receve some degree of proecon from her governmens. In some cases he subsdes are so generous ha rade acually ncreases as a resul. However, when we focus on oher ndusres ha use energy, bu ofen no drecly suppored by he governmens, such as he ranspor equpmen ndusry and he meal ndusry, he negave effec of he carbon ax on rade s clear. On he oher hand, energy effcency sandards requre ha frms produce goods ha are more envronmenally frendly, whch affecs a broader range of ndusres. In hs case, he adverse effecs of such polcy are also que evden. 11

14 References Anderson, James A., and Erc van Wncoop (2003). Gravy wh Gravas: A Soluon o he Border Puzzle. Amercan Economc Revew 93: Feensra, Rober (2003). Advanced Inernaonal Trade. Prnceon Unversy Press. Lnnemann, H An Economerc Sudy of Inernaonal Trade Flows. Amserdam: Norh-Holland. Maoo, A., A. Subramanan, D. van der Mensbrugghe, and J. He (2010), "Reconclng Clmae Change and Trade Polcy," World Bank Polcy Research Workng Paper #5123. Nca, Alessandro and Marcelo Olarreaga (2004) Expors and Informaon Spllovers, he World bank. Tnbergen, J Shapng he World Economy: Suggesons for an Inernaonal Economc Polcy. New York: The Tweneh Cenury Fund. Uned Naons (2006), Comrade Daabase. World Bank (2006). World Developmen Indcaors. 12

15 Table 2 Dependen varable: Log of blaeral expor relave o he produc of GDP n wo counres (1) (2) (3) (4) Log of blaeral dsance (km) *** *** *** *** (0.018) (0.018) (0.018) (0.018) Common border dummy varable 0.961*** 0.963*** 0.963*** 0.963*** (0.051) (0.050) (0.051) (0.051) Common currency dummy varable 0.171*** 0.173*** 0.174*** 0.174*** (0.036) (0.037) (0.036) (0.036) FTA dummy varable 0.408*** 0.412*** 0.409*** 0.409*** (0.069) (0.069) (0.069) (0.069) c (0.033) (0.033) (0.034) c * * (0.024) (0.024) (0.023) c (0.045) (0.045) (0.048) ees *** *** ** (0.036) (0.036) (0.038) ees *** *** * (0.033) (0.033) (0.035) ees *** *** (0.036) (0.036) (0.037) c1*energy nensve npu ndusry 0.462*** (0.022) c2*energy nensve npu ndusry *** (0.034) c3*energy nensve npu ndusry 0.317*** (0.036) 13

16 ees1*energy nensve oupu ndusry *** (0.044) ees2*energy nensve oupu ndusry *** (0.049) ees3*energy nensve oupu ndusry *** (0.041) Consan *** *** *** *** (0.217) (0.217) (0.216) (0.215) Exporng counry fxed effecs Yes Yes Yes Yes Imporng counry fxed effecs Yes Yes Yes Yes Indusry fxed effecs Yes Yes Yes Yes Year fxed effecs Yes Yes Yes Yes Sample sze R-squares Noes: *, **, *** ndcaes sascal sgnfcan a 90%, 95% and 99% level respecvely. Sandard errors n parenheses are clusered by counry-year par. Sample s pooled across all 3-dg ISIC manufacurng ndusres. 14

17 Table 3 Dependen varable: Log of blaeral expor relave o he produc of GDP n wo counres (1) (2) (3) (4) (5) Indusry Log of blaeral dsance (km) *** *** *** *** *** (0.034) (0.028) (0.026) (0.032) (0.043) Common border dummy varable 0.490*** 0.773*** 1.054*** 0.555*** 1.056*** (0.065) (0.068) (0.073) (0.065) (0.095) Common currency dummy varable 0.180*** *** 0.262*** (0.052) (0.048) (0.050) (0.067) (0.076) FTA dummy varable 0.217* *** ** (0.114) (0.113) (0.104) (0.158) (0.160) c ** *** 0.148** (0.055) (0.039) (0.049) (0.058) (0.062) c (0.042) (0.044) (0.047) (0.049) (0.060) c *** (0.068) (0.063) (0.071) (0.078) (0.094) ees ** *** (0.085) (0.047) (0.061) (0.065) (0.090) ees ** (0.080) (0.045) (0.063) (0.067) (0.094) ees *** ** (0.085) (0.055) (0.063) (0.072) (0.097) Consan *** *** *** *** *** (0.410) (0.322) (0.321) (0.372) (0.473) Exporng counry fxed effecs Yes Yes Yes Yes Yes Imporng counry fxed effecs Yes Yes Yes Yes Yes Year fxed effecs Yes Yes Yes Yes Yes Sample sze R-squares Noes: *, **, *** ndcaes sascal sgnfcan a 90%, 95% and 99% level respecvely. Sandard errors n parenheses are clusered by counry-year par. 15

18 Table 4 Dependen varable: Log of blaeral expor relave o he produc of GDP n wo counres (1) (2) (3) (4) (5) Indusry Log of blaeral dsance (km) *** *** *** *** *** (0.022) (0.021) (0.024) (0.029) (0.020) Common border dummy varable 0.883*** 0.630*** 0.502*** 0.646*** 0.947*** (0.049) (0.055) (0.058) (0.068) (0.064) Common currency dummy varable * (0.048) (0.053) (0.050) (0.053) (0.051) FTA dummy varable 0.747*** 0.628*** 1.537*** 1.482*** 0.345*** (0.080) (0.081) (0.117) (0.126) (0.102) c *** ** (0.044) (0.040) (0.043) (0.054) (0.040) c * *** (0.036) (0.035) (0.040) (0.054) (0.044) c *** *** *** *** *** (0.060) (0.061) (0.066) (0.082) (0.061) ees *** *** (0.054) (0.046) (0.048) (0.072) (0.058) ees * ** (0.050) (0.042) (0.045) (0.067) (0.056) ees *** *** (0.057) (0.047) (0.053) (0.068) (0.060) Consan *** *** *** *** *** (0.266) (0.255) (0.291) (0.373) (0.234) Exporng counry fxed effecs Yes Yes Yes Yes Yes Imporng counry fxed effecs Yes Yes Yes Yes Yes Year fxed effecs Yes Yes Yes Yes Yes Sample sze R-squares Noes: *, **, *** ndcaes sascal sgnfcan a 90%, 95% and 99% level respecvely. Sandard errors n parenheses are clusered by counry-year par. 16