The Integrated Energy Taxation for Green Fiscal Reform: A Three-Part Tariff Approach

Transcription

1 The Integrated Energy Taxation for Green Fiscal Reform: A Three-Part Tariff Approach Dr. Hui-Chen Chien Counselor / Executive Secretary GHG Reduction Management Office, EPA, Taiwan R.O.C. 1

2 1. Introduction Contents 2. Rethinking Taiwan s Energy Taxation Energy tax in Taiwan Double-dividends hypothesis and green fiscal reform 3. The Model and Framework Properties of the energy markets Institutional regime Decision behaviors 4. Results 5. Conclusion 2

3 1. Introduction Background The Energy Tax Bill was first initiated in 2006 as a response to the critical challenges of climate change, energy crisis and double-dividends hypothesis. Since the first draft failed to pass the legislature, there were another seven versions submitted for consideration in the past seven years. Debates are continuing. 3

4 1. Introduction Controversial points: 1.Should the energy tax be introduced to replace the prevailing excise tax on energy products since nothing is changed except that the tax rate will increase over time? 2.How is the tax rate determined? 3.How to allocate the tax revenue among alternative uses? 4.Whether the green fiscal reform will realize double dividends? 5.To what extent will the new tax affect the economy and industrial competitiveness? 4

5 1. Introduction Objectives To propose an innovative rule to decompose the energy tax rate into three components, with objectives of: - carbon reduction - energy saving - green fiscal reform. Fiscal Reform (C) CO2 Reduction (A) Energy Efficiency (B) Energy Efficiency Tree-Part Tariff τ = A+ B+ C CO2 Reduction Fiscal Reform 5

6 2. Rethinking Taiwan s Energy Taxation Energy tax in Taiwan Legislation objectives are to: reduce CO 2 emission promote energy saving improve energy efficiency develop renewable energy internalize external costs of energy use implement green fiscal reform Energy Tax Bill Most energy products already subject to excise tax, to be replaced by energy tax. Air Pollution Control Fee Available tool to internalize externality arising from air pollutant emissions. 6

7 2. Rethinking Taiwan s Energy Taxation The Taiwan Environmental Protection Administration (EPA) is also authorized to collect Air Pollution Control Fee (APCF). Air Pollution Control Fee Air Pollution Control Act Collect air pollution control fees from stationary and mobile pollution sources that emit air pollutants. Fees shall be provided exclusively for air pollution control uses. Establish Air Pollution Control Fund 7

8 2. Rethinking Taiwan s Energy Taxation EPA has designated CO 2, CH 4, N 2 O, SF 6, PFCs and HFCs as air pollutants under the existing Air Pollution Control Act GHG Control Voluntary Reporting & Reduction Voluntary Mandatory Inventory & Reporting Designated emitters Performance Stds, Offset Trading Existing/ new sources Cap & Trade, Offsets Reduction target allocation Moving from GHG Reduction to Air Pollution Control Air Pollution Control Air Pollution Control Act EPA has drafted 3 rd Phase reporting emitters, and plan to set emissions standards and air pollution control fee within 3 years Permits Emissions Std. Pollution Fee Emissions Reporting Cap Monitoring/ verification Fuel control Fugitive emissions 8

9 2. Rethinking Taiwan s Energy Taxation Energy tax in Taiwan: One-part tariff approach One-part tariff Two-part tariff?? Underlying problems: Ensure energy saving? Optimal tax rate? Achieve multiple objectives? 9

10 2. Rethinking Taiwan s Energy Taxation The underlying problems: Energy tax in Taiwan The existing excise tax is not based on the carbon content of the energy product. There is no clear indication to ensure energy saving or energy efficiency improvement. The double dividends from green fiscal reform would be less feasible. Multiple objectives can hardly be achieved. 10

11 2. Rethinking Taiwan s Energy Taxation Three-part Tariff Approach We argue that the legislative objectives of the energy tax should be confined to carbon reduction, energy efficiency improvement, and fiscal reform. Accordingly, a three-part tariff scheme could be derived for energy tax rate: τt * () ct = () et + () + ft () i i i i Where τt i* () is the socially optimal overall rate; the third component is the residual * required to make the overall rate socially optimal (i.e., ftτt () = c () t e () t () ). i i i i 11

12 3. The Model and Framework Properties of the energy markets The domestic markets of secondary energy could be classified into energy product market and electricity market, according to the supply chain of energy. Primary energy Coal, oil, natural gas Importers and producers Secondary energy Consumers Petrochemical companies Power companies Gasoline, diesel, kerosene, LPG, etc. electricity households manufacturers Service sectors Renewable energy (wind, solar) 12

13 3. The Model and Framework Properties of the energy markets The energy product market: Duopoly (only two firms producing all fossil energy products, one state-owned and the other private.) The price of the energy products is partially regulated by the authorities and its product outlet is domestic-oriented. The private company is allowed to export without restriction, except under certain circumstances. The electricity market: Monopolistic power company (i.e, Taiwan Power Company, Taipower) and several small independent power plants (IPP) that sell electricity generated from fossil energy as well as renewables to Taipower at feedin tariffs. Taipower is regulated in pricing rule that is far from profit maximization. 13

14 3. The Model and Framework Institutional regime Energy R& D Fund, Petroleum Fund Bureau of Energy EST Permit auction market Energy R& D Fund, Petroleum Fund Carbon price Emission trading market Importers Energy products inputs Tariff Excise tax Energy tax SUWF Suppliers of energy products Abatement production Excise tax Energy tax APCF SUWF Price +Excise tax emissions products Agencies M inistry of Finance EPA (APC Fund) GHGs Consumers APCF Carbon fee Auction revenue 2013/6/26 cash flow material flow VFF M inistry of Transportation VFF 14

15 3. The Model and Framework Private decisions and optimal taxation The Taiwan General Equilibrium Model (TAIGEM- III) is used for imputing the optimal tax and policy simulation. Main features: A two-tier labor market A duopoly secondary energy product market plus an monopolistic electricity market with several small IPPs and government intervention. The emission trading market determines the carbon price that provides us with a benchmark to estimate the carboncontent tax. 15

16 4. Results The first dividend is confirmed as expected carbon-content tax rate (NT$/unit) tl tl MVU Welfare difference from base case Carbon price (NT$/t) gasoline diesel kerosene aviation fuel fuel oil #REF! LPG LNG coal Carbon-content tax rate of energy products tx

17 5. Conclusion Existing decomposition of energy tax ignores consumer s response to policy instruments such as energy tax, carbon price, labor income tax, etc. Optimizing both energy tax and carbon tax are critical to ensure double dividends. Exogenous carbon price is undesirable. Carbon budget or emission cap could be incorporated in the model. 17

18 Thank You 18