Uniform taxation of GHG in DK - To lower the costs of climate policy

Transcription

1 Uniform taxation of GHG in DK - To lower the costs of climate policy Det Miljøøkonomiske Råds konference august 2013 Summary: The analysis is first framed in a simplistic setting. We analyze the effect of moving towards a uniform tax on GHG as opposed to the system in place to day. The present system is characterized by highly differentiated pricing of GHG and a mixture of taxes, subsidies and other regulation. We first emphasize the classical economic welfare argument that taxes not founded on externalities leads to avoidable loss of economic welfare. Hence, rates that are higher than what is needed to achieve policy objectives should be replaced by broadly based taxes. Second, we point to three places where the present system puts in place real barriers to achieving climate policy objectives. We then expand the framework of the analysis by acknowledging interactions with the surrounding world, ie. the risk of carbon leakage and the difficulty of taxing demand covered by the ETS-system. Taking these issues into account, in combination with negative terms of trade effects and the relation between ambitious global policies and the price of future technology, we conclude that international corporation is most important. - If Denmark is going alone, an ambitious climate policy will at best be far more expensive, and at worst absolutely inefficient. At the end of the presentation there is a discussion of policy implications. Jens Sand Kirk Economist Mobile jsk@copenhageneconomics copenhageneconomics.com

2 Presentation based on recent studies Carbon leakage from a Nordic perspective, Nordic Council of Ministers (2012) A proposal for reform of Danish energy taxation, CONCITO (2012) Green reform of car taxation in Denmark, Danish Electric vehicle alliance (2012) Effective Carbon Prices, OECD (forthcoming - Oct 9th) DK i et grønt certifikatmarked, CONCITO (forthcoming) Uniform tax on GHG in DK, CONCITO (forthcoming) 2

3 Uniform taxation of GHG in DK Agenda The Danish energy taxation and support schemes makes up a very unbalanced system The case for uniform price setting of GHG Consumer welfare argument The system creates real barriers for achieving climate objectives What is the necessary level of taxation - The future that lies ahead. The benefits of international corporation Policy implications 3

4 The danish energy taxation and support schemes makes up a very unbalanced system Taxation on energy for final demand 4

5 The danish energy taxation and support schemes makes up a very unbalanced system Taxes applied on GHG at source of emission 5

6 The case for uniform price setting of GHG The Consumer welfare argument Tax distortions not founded in externalities lead to avoidable loss of welfare 1) Introduction of uniform taxation 6

7 The case for uniform price setting of GHG The Consumer welfare argument Uniform taxation lays the foundation for efficient shifts of technology 2) Shift towards GHG-efficient technologies to avoid tax 7

8 The case for uniform price setting of GHG The Consumer welfare argument The alternative: Pick the winner through targeted subsidies 3) Financing technological shifts through subsidies Note: Higher demand and thus higher emissions. 8

9 The case for uniform pricing of GHG The consumer welfare argument Opportunities Difficulties Avoidance of welfare distortions o Energy security argument Target only transport fuels Promote efficient technological shifts o Clear signal to investors o Exploit cheapest abatement options (gas) o No need to subsidize mature RE technologies Carbon leakage The ETS system Budget considerations Distributional impact 9

10 What is the necessary level of taxation in 2030? Power generation CCS at 275 Kr/t (versus coal) Road transportation 2g Bio at 560 Kr/tCo2 (versus diesel) 10

11 The system creates real barriers for achieving climate objectives 1) A low ETS price o Makes gas powered plants unprofitable o Necessitates high support rates to reach RE targets. 2) High level of taxation on electricity and district heat o Does no good for promoting technological change in power generation. 3) Misaligned incentives for saving on fuels versus shift to green fuels or hybrid vehicles o Bio fuel taxed at nearly the same rate as diesel or gasoline o Electric vehicles are only temporarily exempt from taxes on fuel and car fees o No exemption for hybrid vehicles 11

12 The benefits of international corporation High costs of going alone: Negative terms of trade effect o Oil and gas prices will be higher (imports) o Price of RE and bio-tech will be lower (exports) Carbon leakage o A continued need for direct subsidies to support RE technologies in industry, agriculture etc. Low ETS price: Higher costs for reaching targets o A continued need to support RE technologies in power generation. o Subsidized RE in Denmark is offset by higher emissions in the other EU countries since ETS operates with a cap on total emissions. Higher costs of GHG-efficient technologies o Higher real costs o Higher distortional loss from taxes 12

13 Policy implications Set the good example by moving towards uniform pricing of GHG instead of subsidizing RE inside the ETS system. Commit on a clear policy target which covers all sources of GHG for, say 2030 Push hard for international agreements and alignment of abatement incentives Short term: Push for more ambitious targets for the ETS and relatively less ambitious targets outside the ETS, with the object of moving towards the alignment of abatement incentives 13