Economic impact of environmental and

Transcription

1 Economic impact of environmental and energy policies in Italy 1st AIEE Energy Symposium Current and Future Challenges to Energy Security 30 November-2 December 2016 The University of Milan-Bicocca Milan Cristina Brandimarte ISTAT, Italian National Institute of Statistics Socio- economic and environmental research department division The views expressed in this article are those of the author and do not necessarily represent those of ISTAT

2 Premises Energy and environment are strictly linked CO2 emissions Climate change main anthropogenic CO2 sources activities requiring: a direct fossil fuel combustion to produce energy (i.e. transport and power sectors) the consumption of secondary forms of energy. For these reasons: a) Energy policy design cannot ignore effects on CO2 emissions b)reduction of CO2 emissions must strongly rely on energy policies 2

3 Policy targets and instruments Targets To change production and consumption models To encourage the reduction of carbon intensity of energy sources; To abate energy intensity (industrial and transport activities, residential and commercial sectors) To reduce the demand d for energy and transport t services. Instruments Marked-based instruments are usually regarded as cost-effective policy tools with high environmental effectiveness both in the short and in the long run 3

4 Carbon tax Pigouvian tax sets price on CO2 to internalize externalities Theoretical indication direct imposition on potential environmental damage (Pigou 1920): a) where the CO2 is released in the atmosphere b) differentiated according to the marginal damage Administrative costs (implementation and compliance costs) affect costeffectiveness uniform price upstream or downstream (Baumol and Oates 1971; Pearce 1991) Duty on fossil fuel sales (upstream tax) low administrative costs large coverage proportional to the environmental damage effective both in the short and in the long run provides fiscal resources can be introduced as an independent instrument or can exist alongside other carbon pricing instrument (World Bank 2014) 4

5 How does the carbon tax work? Price signal to final consumers increases the cost of emission intensive goods and services incentivizes producers to reduce CO2 intensity encourages households to consume less of them and more of other goods and services Risks A carbon tax would have a negative effect on the economy through the following channels: Reduction of purchasing power Worsening of price competitiveness reduced labor supply distributive effects (households, industries, areas/parts of the country) 5

6 How to address the economic impact issue The evaluation of economic impact can be addressed in two ways: 1. Partial equilibrium analysis direct effects on sectors associated with policy intervention 2. Macroeconomic (general equilibrium) analysis does account for interactions and aggregation effects and considers both direct and indirect effects on the overall economic system and public finance. It can happen that policies that appear to improve efficiency in a partial equilibrium analysis, can indeed emerge as reducing efficiency when general equilibrium interactions are taken in account, arising economic and fiscal sustainability issues. 6

7 Theoretical and empirical main conclusions Theoretical and empirical i literature t shows that t it is not possible to draw generally-valid conclusions on economic consequences from a carbon tax, but that its final effects strongly depend on country-specific factors (economic, institutional and structural characteristics). In this presentation, the most relevant factors are briefly discussed in order to identify indicators that can help to evaluate risks, potential costs and benefits. Part I : theoretical indications Part II: indicators comparison among Italy, France and Germany (Eurostat data) 7

8 Macroeconomic approach Short and long term and how the effects spread through the economy Direct or primary effects : a)increased prices of fossil fuels real disposable income, real interest rates, profits., b)changes in relative prices mix of goods and services consumed and produced relative demand for labor and capital and for imported and domestic goods Indirect or interaction effects second round effects on prices and competitiveness (indexation of economy, prices of domestically produced instrumental and investment goods), saving, investment decisions and labor supply Expectations 8

9 Income and substitution impact on consumption Income effect ect (price increase): c lower real wages and profits purchasing power, consumption, Substitution effects (changes in relative prices): shifts in the mix of goods and services consumed (also between imported and domestic goods) Total effect from A to E Substitution effect from A to G With the new prices, what is the bundle that would make the consumer just as happy as before the price change? Income effect from G to E With the same relative prices than in G, which is the consumer optimal choice with the new bundle? 9

10 Impacts on firms and industry OCDE (2014 ) Competitiveness impacts of carbon pricing: a review of empirical findings 10

11 Medium/long term effects In a closed economy a carbon price signal provides incentives for efficiency improvements and innovations and for more responsible consumption. In an open economy, increasing carbon prices increase production costs and may lead to relocation of economic activities to less-regulated countries and export back goods with an high content of CO2 emissions to regulated regions Carbon leakage no global enviromental benefit, the economy in the regulated country adverse effects on 11

12 BASIC FACTORS AFFECTING ECONOMIC IMPACT Main basic factors: open or closed economy (degree of openness and exposure to international competition) unilateral or global tax exchange rate regime monetary policy reaction fiscal policy reaction (use of tax revenues) market power of national producers («made in Italy») 12

13 SPECIFIC FACTORS households (consumption) a) Share of households direct consumption of fossil fuels (transport and residential use) income and substitution effects, elasticities b) CO2 intensity of fossil fuel directly consumed by households (if carbon price is set according with carbon intensity) income and substitution effects, elasticities c) Share of households indirect consumption of fossil fuels ( if the tax is passed to energy final price) income and substitution effects, elasticities i. energy consumption by households ii. CO2 intensity of energy d) Share of imported fossil fuels on total fossil fuel consumption demand of national and imported goods 13

14 SPECIFIC FACTORS firms (competitiveness) f) Carbon/ energy intensity of nationally produced goods and services costs, competitiveness, profits h) Factor substitution elasticities final prices purchasing power, competitiveness i) Availability of cleaner tecnologies and cleaner energy sources j) Sectoral effects and relative weights of hitted sectors GDP, employment.. Economic impact of environmental and energy policies in Italy, Cristina Brandimarte- Milan 30 november-2 december

15 ITALY ITALY Small open economy belonging to a single currency area Interest and exchange rates are not influenced by the carbon tax Free movements of goods, services and capital Expansive effects from real interest rates reduction, that can partially compensate negative effects on the economy Risks of competitiveness losses 15

16 INDICATORS I. CO2 emissions a) who emits CO2 (household and economic activities) b) CO2 intensity II. Energy balance (production, consumption, import and exports of energy products) a) Energy intensity b) Fossil fuel intensity c) Households final consumption of energy products III. Final prices of energy for households and firms 16

17 CO2 EMISSIONS 17

18 CO2 emissions : households vs economic activities CO2 EMISSIONS (tonne) 1E GERMANY FRANCE ITALY All economic activities Households 100,0 90,0 80,00 70,0 60,0 50,0 40,0 30,00 20,0 10,0 0,0 CO2 EMISSIONS - % COMPOSITION GERMANY FRANCE ITALY 18

19 3,00 Emissions per capita and in % of Value Added HOUSEHOLDS CO2 EMISSIONS (per capita) ,50 2,00 1,50 1, ,50 0,00 GERMANY FRANCE ITALY 350,0 300,0 CO2 EMISSIONS INTENSITY ECONOMIC ACTIVITIES (2013) Grams per euro of VA, chain linked volumes (2010) 250,0 200,0 150,0 100,0 50,0 0,0 GERMANY ITALY FRANCE 19

20 CO2 EMISSIONS BY SECTOR CO2 EMISSIONS BY SECTOR (tonne) CO2 EMISSIONS BY SECTOR (% comp) 0 GERMANIA FRANCIA ITALIA 0 GERMANY FRANCE ITALY Electricity, gas, steam and air conditioning supply Manufacturing Electricity, gas, steam and air conditioning supply Manufacturing Transportation and storage Transportation and storage Total - all NACE activities 20

21 GROSS VALUE ADDED BY SECTOR GROSS VALUE ADDED (VOLUME) % COMP 100,00 90,0 80,00 70,0 60,0 50,0 services constr industry excl const Agric 40,0 30,0 20,0 10,0 0,0 GERMANY FRANCE ITALY 21

22 HOUSEHOLDS CO2 EMISSIONS BY ACTIVITY GERMANIA FRANCIA ITALIA 100,0 90,0 80,0 Other activities by households 70,0 Transport activities by households 60,0 Heating/cooling activities by households 50,0 40,0 30,0 20,0 10,0 0,0 % COMP GERMANIA FRANCIA ITALIA 22

23 Energy balance 23

24 ENERGY DEPENDENCE BY PRODUCT 120,0 ENERGY DEPENDENCE BY ENERGY PRODUCT ,0 80,0 60,0 40,0 20,0 0,0-20,0 ITALY FRANCE GERMANY Total all products Solid fuels Oil (total) Gas Total Renewables 24

25 CO2 EMISSION COEFFICIENTS Solid fuels Oil (total) Gas CO2 EMISSION COEFF. (kg CO2 per MMBtu) (EEA)

26 FINAL CONSUMPTION OF ENERGY PRODUCTS (% comp.) HOUSEHOLDS GERMANY FRANCE ITALY 100,0 90,0 80,0 70,0 60,0 50,0 40,0 30,00 20,0 10,0 INDUSTRY FRANCE GERMANY ITALY Total petroleum products Gas Solid fuels Oil (total) Gas Solid fuels Electrical energy Total Renewables Wastes (non ren.) Derived heat Renewable energies Derived heat Electricity 26

27 Energy products as transformation input Transformation input by product % comp. (excl.refineries) Italy France Germany 0 Solid fuels Oil (total) Gas Total Renewables Wastes (non ren.) Nuclear heat Derived heat Electricity Transformation input by activities (excl refineries) % ITALY FRANCE GERMANY Main Activity Producer Conventional Thermal Power Stations Autoproducer Conventional Thermal Power Stations Nuclear Power Stations Coke-ovens Blast-furnaces District heating plants BKB / PB Plants 27

28 FINAL ENERGY CONSUMPTION FINAL ENERGY CONSUMPTION BY SECTOR 2014 % comp. 40,0 35,0 30,0 25,0 20,0 15,0 10,0 5,0 0,0 GERMANY FRANCE ITALY Industry Transport Residential Services Agriculture/Forestry Non-specified (Other) 28

29 GROSS INLAND CONSUMPTION ,0 GROSS INLAND CONSUMPTION OF ENERGY PRODUCTS 2014 Ktoes , , , , ,0 Italy France Germany ,0 Oil (total) Gas Total Renewables Solid fuels Electricity Wastes (non ren.) Nuclear heat 29

30 ENERGY PRICES 30

31 Electricity prices for domestic consumption (2016 S1) Excluding taxes and levies All taxes and levies included 0,3000 0,5000 0,2500 0,4500 0,4000 0,2000 0,3500 0,3000 0,1500 0,2500 0,1000 0,2000 0,1500 0,0500 < kwh kwh < kwh > kwh < C < C < < C < kwh kwh kwh kwh 0,1000 < kwh kwh < kwh > kwh < C < C < < C < 15 kwh kwh kwh 000 kwh EU28 Germany France Italy EU28 Germany France Italy 31

32 Electricity prices for industrial consumers (2016 S1) Excluding all taxes and levies Excluding VAT and other recoverable taxes and levies 0,1800 0,3000 0,1600 0,1400 0,1200 0,2500 0,2000 0,1000 0,1500 0,0800 0,0600 0,1000 0,0400 < 20 MWh 20 MWh < C < 500 MWh 500 MWh < C < MWh MWh < C< MWh MWh < C< MWh MWh < C < MWh > MWh 0,0500 < 20 MWh 20 MWh < C < 500 MWh 500 MWh < C < MWh MWh < C< MWh MWh < C< MWh MWh < C < MWh > MWh EU28 Germany France Italy EU28 Germany France Italy 32

33 Gas prices for domestic consumption (2016 S1) ALL TAXES EXCLUDED 0,1400 ALL TAXES INCLUDED 0,1300 0,1100 0,1200 0,1000 0,1100 0,0900 0,1000 0,0800 0,0900 0,0700 0,0800 0,0600 0, ,0500 0,0600 0,0400 0,0500 0,0300 < 20 GJ 20 GJ < C < 200 GJ > 200 GJ 0,0400 < 20 GJ 20 GJ < C < 200 GJ > 200 GJ EU28 Germany France Italy EU28 Germany France Italy 33

34 Gas prices for industrial consumers (2016 S1) ALL TAXES EXCLUDED VAT AND OTHER RECOVERABLE TAXES AND LEVIES EXCLUDED 0,0500 0,0450 0, ,0350 0, ,0250 0, , ,0550 0,0500 0,0450 0,0400 0,0350 0,0300 0,0250 0, ,0150 < GJ GJ < C < GJ GJ < C< GJ GJ < C< GJ GJ < C < GJ > GJ 0,0150 < GJ GJ < C < GJ GJ < C< GJ GJ < C< GJ < C GJ < GJ > GJ EU28 Germany France Italy EU28 Germany France Italy 34

35 Implicit tax rate on energy (EUR per TOE) EU (28 countries) Euro area (19 countries) Germany Spain France Italy 35

36 Conclusions Comparing Italy with France and Germany: Potentially ti stronger terms of trade gains Lower impacts on firms and households in the short term but the adjustment could be slower and more costly because of: lower elasticities fewer alternatives smaller room for further improvements? European carbon tax would probably hit Germany and Italy more than France. An unilateral carbon tax (duty on fossil fuels purchases) could have negative effects on economy mainly through competitiveness losses Competitiveness losses would reduce exports and increase imports both in the short and in the long term carbon leakage towards not regulated country could be a real risk A viable alternative could be a downstream or consumption-based carbon tax modelled on VAT : It protects competitiveness of domestic producers It falls entirely on domestic final consumers and does not affect prices of instrumental goods It reduces incentives for tax evasion It can provide incentives for partner countries to adopt their own carbon prices Simulations with ISTAT macroeconometric model MeMo-It show why it should be more effective and less costly with respect to a duty on fuel purchases. (cfr. AA good F.A.C.T. for climate change mitigation in Environmental Taxation - Green Fiscal Reform for a Sustainable Future Vol XVII Edward Elgar Publ and Modello Iva per la carbon tax lavoce.info ) Economic impact of environmental and energy policies in Italy, Cristina Brandimarte- Milan 30 november-2 December