Costs and Benefits of a Carbon Policy for China

Transcription

1 Costs and Benefits of a Carbon Policy for China Jing Cao Tsinghua University Mun S. Ho, Dale Jorgenson Harvard University Coping with Copenhagen Chinese Challenges in Defining a Climate Policy Oct , Beijing

2 Introduction China fossil fuel use is source of 2 problems Severe air pollution and environmental damage in China and regionally Air pollution is estimated to cause 100, ,000 premature deaths annually. (Cao, Ho and Jorgenson, 2008 and World Bank 2007). Greenhouse gas emissions contributing to global climate change. Of total world CO2 from fossil fuel use, China contributed 18% and U.S. 24% in Netherlands EPA calculated China is top of the carbon dioxide list in 2006 In Recent JEEM 2008 (May), Auffhammer Maximilian (UC Berkeley) predicted that China s CO2 growth is about 11% for , exceeding GDP growth

3 Introduction Fossil Fuel Effects (continued) Coal use is responsible for 55% of TSP and 82% of SO2 from combustion and non-combustion sources in China in Coal use is responsible for 96% of TSP and 93% of SO2 considering combustion emissions alone. Coal use is responsible for 79% of CO2 from fossil fuel combustion (71% of CO2 from fossil fuel burning and cement production combined). That is, liquid fuels contribute relatively more to CO2 than to local pollution.

4 Introduction Emission of SO2 in China (mil. tons) Million tons

5 Introduction Carbon Emissions; total (mil.tons) and per capita (kg./person) Total Carbon Carbon per person

6 China s Carbon Intensity 350 Fig. Carbon emission Intensity (tons of Carbon per million yuan GDP, 2000 yuan) (Carbon from fossil fuel combustion and cement)

7 Carbon Tax Policy for China? Coping with Copenhagen Chinese Challenges in Defining a Climate Policy Global Perspective: Harmonized Carbon Tax Policy? Richard Cooper (Harvard): propose a global carbon tax, the Clinton Administration calculated in 1998, if China, India etc included in trading, the trading price would be $23 /ton C to achieve Kyoto Protocol

8 Carbon Price? Source:

9 Carbon Price?

10 Carbon Tax Policy for China? China Perspective: More likely to Impose Carbon Tax or Energy Tax, rather than joining the Global Emission Trading System with binding cap commitment In this study, we try a relatively smaller 10$/ton C and a 20$/ton C carbon tax Embedded Carbon and Border Tax Implications? Need to calculate carbon content for each commodity Difficult to work out what carbon content is for imports from various countries

11 Aims of study of national impacts of carbon control policies Analyze impact on industry output, prices and energy use Impact on carbon emissions Impact on aggregate GDP and Consumption Impact on growth over time Impact on emissions of TSP and SO2; hence impact on health That is, the costs and benefits of policies: costs: lower consumption and GDP benefits: lower local pollution and lower global greenhouse gas emissions.

12 Model China CGE Model A Recursive Solow CGE Model Based on Most Recent 2002 Official I-O Table and Social Accounting Matrix Representative household, assume fixed labor supply Assume Two-Tier plan-market capital market Armington assumption for modeling international trade Pre-existing taxation in the second-best setting Intake-Fraction methods to estimate for environmental health damages

13 A Simple Carbon Tax Policy: Methodology to Analyze Impacts Scenario 1: A Unilateral Tax on Consumption of Carbon, which is equivalent to a tax on domestic coal, oil, gas and on imported coal, oil and gas uses. Establish a base case path of the economy using a multi-sector growth model of China with no carbon policy. Note the energy use, carbon emissions and local health damages in each year of the base path. Simulate a new path where a carbon tax is placed on fossil fuel consumption. This tax is applied to consumption so imported fuels are taxed but imported manufactured goods are not subjected to a carbon tax. The revenues from the new carbon tax is used to lower all existing tax rates so that government consumption is equal to the base case level.

14 Base Case Simulations Figure 1. GDP, CO2, TSP, SO2 Emissions Projected in Base Case GDP (Bil. Yuan); Emissions (ktons) Carbon Dioxide (Million Metric Tons) GDP TSP SO2 CO2

15 Counterfactual Simulations First Year Impacts % Consumption Investment GDP Carbon Emissions TSP Emissions SO2 Emissions Health Damages Car bon Tax - 10$/ t on Car bon Tax - 20$/t on

16 Counterfactual Simulations Impacts in 2030 % Consumption Investment GDP Carbon Emissions TSP Emissions SO2 Emissions Health Damages Car bon Tax - 10$/ t on Car bon Tax - 20$/ t on

17 Counterfactual Simulations GDP Impacts % $/ t on C Car bon Tax 20$/ t on C Car bon Tax

18 Industry Impacts on Output First Year coal mining natural gas gas pr oduct s chemical el ect r i c power and st eam crude oil r ef i ni ng and coal pr od primary metal manuf building materials instruments textiles electric machinery other sevices transport metal products apparel and leather non-energy mining lumber and furniture other industry agriculture paper and cul t ur al machinery electronics f i nance and i nsur ance business service communication publ i c admi ni st r at i on hotel business real estate transport equipment f ood manuf act ur i ng construction commmerce $/ t on Car bon Tax 10$/ t on Car bon Tax

19 Industry Impacts on Price First Year c o mmme r c e f ood manuf act ur i ng hotel business business service f i nance and i nsur ance real estate electronics instruments communication t r anspor t equi pment appar el and l eat her publ i c admi ni st r at i on ot her i ndust r y paper and cul t ur al transport machinery electric machinery non- ener gy mi ni ng agriculture met al pr oduct s textiles lumber and furniture other sevices construction primary metal manuf building materials r ef i ni ng and coal pr od el ect r i c power and st eam chemical cr ude oi l gas pr oduct s natural gas coal mining $/ t on Car bon Tax 10$/ t on Car bon Tax

20 Other Alternative Tax Scenarios Scenario 2:A Unilateral Tax Plus Import Offset, i.e. a tax coal, oil and gas, and a tax on imported goods equal to the net tax on domestic goods. I.e. a tax imposed on embedded carbon contents of the goods. Scenario 3: A Unilateral Tax Plus Import Offset and Export Rebate, i.e. Give export a subsidy equal to the net embedded carbon tax.

21 Key Method: Estimate Embedded Carbon Intensity by Commodity/Sector Data: China Input-Output Table 2002 (Export Carbon Intensity) and US Input-Output Table 2002 (Import Carbon Intensity) Using Use Matrix U, we can derive Activity Matrix v v v v 1 U = [ ] B= [ b ] = U [ diag( X )] u ij. The vector of industry output is denoted by X = ( X1,... X n )' Using Make Matrix V, we can determine the relationship between industry output and commodity supply ij V v v = [ ] X V ji v = DQ v the vector of industry output is the row sum, X = V the vector of commodity output is the column sum, Q v v v D= [ d ] = V [ diag( Q )] ji 1 ι v = V v v ' ι

22 Method (cont ) v 1 v Q = ( I BD) E 1 where I is the identity matrix. ( I BD) is known as the Leontief inverse, or the commodity total requirements matrix. It tells us that to produce a vector E of final demand commodities, the economy must produce a vector Q of gross output of commodities. In particular, this formulation expresses the additional outputs required to produce an extra unit of good i for final users. Thus we can define commodity total requirement vector i Δ Q = ( ) 1 I ΒD ii ΔQ i farm i i ΔQoil Δ Q = i ΔQgas M

23 Method (cont ) where denote the total carbon emissions due to producing one unit of i, and θ ' = (0,.., θcoal, θoil,..0) is the vector of carbon coefficients with non-zero entries only for the primary fuels. ΔC i Δ C = θ Δ Q + θ Δ Q + θ ΔQ i i i i coal coal oil oil gas gas = θ ' ΔQ i I Consider that oil and gas are used as feedstock in the production of chemicals and other non-combusted products ' ΔC Δ C = M = BD I BD + I 1 1 ' θ'[ φ ( ) ] where φ is the combustion ratio

24 Carbon Intensity by Sector Thus we can calculate carbon intensity by sector, and this would be the basis to calculate embedded carbon content for China s export. Ho, Morgenstern, and Shih (2008) recently worked out the embedded carbon intensity by sector for the United States, and in this study we use this data to calculate embedded carbon intensity for China s imports.

25 Carbon Intensity by Sector (metric ton C/yuan) realest f i nance el ect nat gas gaspr od bui l d pmet al chem coal me t a l nonener gy ma c h i n emachi n const r t equi p t r ansp lumber textile instru cr ude paper el ect r o ser vi ce ot her appar el refine food hot el busi ness c o mmu n admi n agr i commer c Chi na Car bon I nt ensi t y US Car bon I nt ensi t y

26 Preliminary Simulation of Alternative Carbon Policies (Impacts in 2030) Scenario 1 Unilateral Scenario 2 Unilateral + Import Tariff Scenario 3 Unilateral + Import Tariff + Export Rebate GDP Consumption Investment CO Other Pollutions /Health Damages

27 Thank You!

28 Preliminary Simulation of Alternative Carbon Policies (Impacts in 2030) - optional Scenario 1 Unilateral Scenario 2 Unilateral + Import Tariff Scenario 3 Unilateral + Import Tariff + Export Rebate GDP Scenario 4 Border Tax (Revenue Kept in China) + Consumption Investment CO Other Pollutions /Health Damages