Index of presentation

Transcription

1 Index of presentation What is the role of INE? o Short and medium term goals What is the ananlysis performed so far o Baseline o PECC o Cost curves (Mckinsey curves, MEDEC curves o Economics of climate change General equilibrium analysis of LEDS o Some Results Recommendation of public policies (enabling mechanisms) o o o o Market prices distorsions Investment Market instruments Regulation 1

2 Short and medium term goals By May 2012, to present a document summarizing all the research done so far, including: Mi<ga<on goals Needed Public policies in order to make it happen Poten<al barriers for implementa<on The social costs and benefits of MLEDS By 2013 to present a new MLEDS document for the next administra<on To recalculate a baseline To develop a porkolio of projects wiht updated informa<on To perform a deeper analysis of the economic implica<ons for Mexico 2

3 The Low Emissions Development Strategy (LEDS) is central element to green growth focused on low- carbon growth Fulfill emissions reducaon pledge Mexico aims at reducing its GHG emissions up to 30% with respect to the business as usual scenario by 2020, provided the provision of adequate financial and technological support from developed countries as part of a global agreement Contribut e to Green Growth Contribute to sustained and equitable economic growth Significantly reduce poverty, create jobs and improve living standards Preserve our environmental capital 3

4 Mexico s emissions are expected to grow from 709 to 872 MtCO 2 e between 2006 and 2020 Projected baseline Mt CO 2 e 1, Oil & Gas Forestry Agriculture Waste Buildings Industry Transport Power Genera<on SOURCE: Emisiones línea base PECC energía.xls; CONAPO; Team Analysis 4

5 Our LEDS idenafies a potenaal to reduce 261 MtCO2by 2020, with respect to the BAU baseline scenario TheoreAcal miagaaon potenaal MtCO 2 e / year BAU scenario Abatement scenario Sector Forestry & agriculture Energy genera<on Residen<al, commercial & industry 1 Transport Abatement potenaal by Waste 26 Oil & gas Total Includes the abatement poten<als of energy efficiency levers in the residen<al and the commercial sectors, as well as the mi<ga<on levers of the industry sector 5

6 What do we have PECC baseline and ac<ons experience PorKolio of projects (Mckinsey and MEDEC curves) Economics of Climate Change (Galindo 2009) According to this study, the costs associated to climate change will be around 6.2% of GDP in 2100 considering a discount rate of 4%. Furthermore, if we consider the non- market costs such as those generated by biodiversity loss, for instance, losses could rise to 7.7% of GDP. the cost of mi<ga<on of emissions would be between 0.7% and 2.2% of GDP considering a worldwide 50% of emission reduc<ons by 2100 and a discount rate of 4%. Likewise, the costs for achieving a 50% emissions reduc<on by 2050 scenario are between 1.12% and 3.5% of GDP. the costs of ac<ng now and reduce 50% of our emissions by 2050 together with the rest of the world will have a net social returns of at least 3 to 1 6

7 LEDS General equilibrium analysis The economic analysis of LEDS has studied the macroeconomic impacts of a number of simultaneous policies enacted to increase energy efficiency and reduce the level of emissions in Mexico. For this analysis a business as usual scenario is first constructed and this scenario is then compared against three sets of policies according to their cost. Comparisons are made to account for the marginal benefit of one scenario vs. another. These policies are successful in their intentions and for the year 2030: GDP is 5% higher against a BAU scenario The rate of unemployment is reduced from 12% to 7%, which means an additional 3 million jobs for that year Due to the implementation of LEDS actions, investment is 24% higher In terms of consumption there is a positive impact to the welfare of low income consumers While the level of energy, gasoline, and automobile consumption goes down, transportation expenditures goes up. The aggregate benefits to go from a low cost policies case to a high cost policies scenario are marginal due to decreasing marginal returns to investment and technological change 7

8 Our acaons are structured across 3 core axis and a set of cross- cuyng enabling mechanisms Low Emission Development Framework CLEAN AND EFFICIENT ENERGY PRODUCTION AND USE ENABLING LOW CARBON GROWTH Build condi<ons for developing green business Promote low carbon social development Strengthen ins<tu<onal capabili<es Increase penetra<on of greener technologies for power genera<on Increase efficiency in energy transforma<on Promote efficiency energy consump<on SUSTAINABLE CITIES BALANCED LAND MANAGEMENT Encourage low- carbon urban development and transport solu<ons Manage waste responsibility Sustainable management of forests and enhancement of forest carbon stocks (REDD+) Lower emissions from agriculture and livestock 8

9 Annex 9

10 MLEDS ACTIONS The Mexican LEDS has identified 133 activities where it is worth putting an effort in terms of mitigations actions with high social benefits. They pursue the following objectives: 1) To increase penetration of greener technologies for power generation; 2) To improve efficiency in energy transformation; 3) To promote efficiency in energy consumption; 4) To encourage low-carbon urban development and transport solutions; 5) To manage waste responsibly; 6) To manage forests sustainably, while enhancing forest carbon stocks (REDD+); 7) To decrease emissions from agriculture and livestock. 10

11 The Business as Usual scenario (BAU) ASSUMPTIONS: GDP: Average annual rate of growth of 2.5% Energy sector: The level of oil extraction is initially 2.6 million barrels per day (mbd), and settles to a flat rate of 3.3 mbd Unemployment: Initial unemployment rate of 2.4% and the existence of monopoly power in the oil and gas as well as the electricity generating sectors. There is general growth in all sectors other than oil and natural gas through all of the years studied. Production sectors such as electricity and refining that are closely related to the burning of fossil fuels the growth is slower. Consumer sectors such as energy and gasoline the growth is also slower. Unemployment rate rises from 2.4% in 2010 to 12% in 2030 due to the importance to of oil and gas to overall growth and investment. 11

12 The Low Expenditure Case An integrated plan to limit energy usage and increase energy efficiency in Mexico is simulated. SCENARIO: The investments are made in a number of sectors (i.e. agriculture, manufacturing, petroleum and gas, chemicals and plastics, electricity, transport, consumer services, and consumer goods) These changes are introduced by a combination of subsidies, taxes, and technological changes corresponding to the levels of the engineering investments given This set of policies is financed domestically RESULTS: The investments lead to an increase in the level of investment over time and the size of the capital stock and the end of the period It leads to an increase in overall economic growth, GDP, consumer welfare, and production. Also in lower levels of unemployment In terms of distribution, the changes are largely progressive, helping those in the lower income groups to a greater degree than they help those in higher income groups 12

13 Gross Domestic Product: BAU vs Low Cost case 13

14 Investment: BAU vs Low Cost case 14

15 Welfare: BAU vs Low Cost case 15

16 Unemployment: BAU vs Low Cost case 16

17 The Medium Cost Case This scenario leaves in place those policies that occurred in the low cost case SCENARIO: In addition to this, further changes are made to various production sectors Increase economic and energy efficiency to the manufacturing in transportation, chemicals, transport industries and agricultural Increase reforestation in an attempt to sequester carbon Increase the subsidies paid by government and foster energy and economic efficiency in a number of the modeled industries RESULTS: The level of GDP as well as the welfare and income of all income groups increase relative to the low cost case The distributional impacts are, largely, neutral with all consumers benefiting roughly the same in percentage terms Investment increases in the earlier periods but declines slightly in later periods leading to a small change in the final level of the capital stock Economic growth then expands a bit in this case over the previous case but not by as much as the growth in the low cost Unemployment and foreign sector have little changed from the previous scenario 17

18 The high-cost domestic finance Case SCENARIO: Changes are implemented in the manufacturing, chemical, livestock, transportation and services industries Investment increases slightly and hence a slightly higher capital stock than in the medium cost case Welfare and income go up for all income groups in a neutral fashion. GDP also rises slightly, probably due to the fact that there are decreasing marginal returns to investment and technological change RESULTS: Sectoral changes are generally positive but modest Most of the consumption sectors show minor increases but there is no change in energy use Production goes up or stays the same in all sectors by 2030 with modest increases occurring in those sectors where investment was made Little change in the foreign sector and emissions go down slightly in the final year of the analysis 18

19 The high-cost foreign finance Case SCENARIO: This case is identical to the previous high cost case except that the expenses for the investments and subsidies are paid for from a foreign lender RESULTS: Compared with the high-cost domestic finance case, the income of the government in this scenario rises Exports go down and less production is required to fill foreign and domestic demand The welfare of all income groups, however, goes down, as does consumption and production. With fewer exports to sell, then, consumer income goes down in all groups and consumption decreases More funds are available for investment and hence investment, the level of the capital stock, and GDP go up. The changes from the previous case are modest with no production or consumption sector decreasing by more than one percent Not all industries are affected equally and the production in the service sector actually rises since the government is a large purchaser from that sector 19

20 The alternative high-cost foreign finance case SCENARIO: Opposite to the last case, in this alternative one Mexico gets the funds to pay for investment and subsidies without a loss of funds for the foreign agent RESULTS: The level of economic growth is higher than with internal funding for the first half of the analysis. However, investment starts to fall (relative to high-cost domestic finance scenario) in the later part of the analysis and by the year 2030 the level of GDP (and the level of the capital stock) drops with respect to what it had been when all environmental investments and subsidies had been initiated without foreign assistance. With this increase in income, over time, the return to labor goes up as does the levels of production goods and consumption goods demanded. The government then has to finance its own workers with higher labor expenditures and pay out higher transfers and subsidies to producers. On the demand side, individuals devote more funds to consumption and this comes at the expense of consumer savings. This has little effect at first, but eventually more funds are siphoned away from investment leading to less capital stock and GDP growth 20

21 Summary of results AGREGATE VARIABLES BUSINESS-AS- USUAL (BAU) (billions of 2005 dollars) LOW-COST VS. BAU (percent changes) MEDIUM- VS. LOW- COST (percent changes) HIGH-COST DOMESTIC FINANCE VS. MEDIUM-COST (percent changes) HIGH-COST FOREIGN FINANCE VS. HIGH-COST DOMESTIC FINANCE (percent changes) ALTERNATIVE HIGH-COST FOREIGN FINANCE VS. HIGH COST DOMESTIC FINANCE (percent changes) GDP Investment Government Final Capital Stock Cumulative Welfare Agent Agent Agent Agent Unemploym ent level

22 GDP: All scenarios vs BAU 22

23 GDP in absolut terms for 2030: all scenarios vs BAU 23

24 Investment: All scenarios vs BAU 24

25 Welfare: All scenarios vs BAU 25

26 Conclusions The mitigation measures have different costs, which in turn must be paid either through higher prices, more taxes or external financing. In light of the economic analysis results, it would seem prudent to act cautiously and initially only implement the lower cost scenario. The money that is saved from expanding to medium or high cost options, however financed, could in turn be spent on adaptation to climate change. Achieving the goal of a low emission development and therefore a green economic growth requires a set of public policies that lay the basis so economic actors make their decision of consumption, investment, and production taking into account all the economic cost and benefit of their actions. The policies could be divided as follows: 1) Make sure that the price system in the market works properly, specially tackling perverse subsidies on fossil fuels 2) Strategic support to innovation and technology adoption 3) Support new green markets through the enforcement of a clear environmental regulation and instruments aim to reduce the costs of transaction. 26

27 Appendix 27

28 Summary table AGREGATE VARIABLES BUSINESS AS USUAL LOW COST VS BAU MEDIUM VS LOW COST HIGH COST DOMESTIC FINANCE VS MEDIUM COST HIGH COST FOREIGN FINANCE VS HIGH COST DOMESTIC FINANCE GDP Investment Government Final Capital Stock Cumulative Welfare Agent Agent Agent Agent Unemployment level Source: Ibarraran and Boyd. Note: In the BAU scenario, all cells give totals for 2020 and 2030 (2005 billions of dollars). In the rest of the scenarios, all numbers represent percent changes between scenarios. 28

29 Result comparisons CGE model 2020 vs SHCP 2017* Demand CGE model 2020 SHCP 2017 Consumption 2.84% 4.20% Government 2.94% 4.20% Investment 1.85% 5.88% Supply Exports 2.56% 8.79% GDP 2.78% 3.86% Imports 2.95% 9.80% *Criterios Generales de Política Económica para la Iniciativa de Ley de Ingresos y el Proyecto de Presupuesto de Egresos de la Federación correspondiente al ejercicio

30 Result comparisons CGE model 2020 vs SHCP