Climate Change Negotiations GTAP-E Group August 14, 2009 Bangkok, - - PowerPoint PPT Presentation

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Climate Change Negotiations GTAP-E Group August 14, 2009 Bangkok, - - PowerPoint PPT Presentation

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17th Annual Short Course in Global Trade Analysis Climate Change Negotiations GTAP-E Group August 14, 2009 Bangkok, Thailand Introduction Background of Kyoto Protocol History Commitment Current status GTAP-E simulation

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SLIDE 1

Climate Change Negotiations

GTAP-E Group August 14, 2009 Bangkok, Thailand 17th Annual Short Course in Global Trade Analysis

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SLIDE 2

Introduction

  • Background of Kyoto Protocol

– History – Commitment – Current status

  • GTAP-E simulation (Burniaux and Truong,

2002): three scenarios

– Without emission trading – With emission trading among Annex 1 countries – With worldwide emission trading

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SLIDE 3

Extensions

  • 1. Re-balancing Emission Reductions
  • 2. Can EEx (Net Energy Exporters)

Manipulate the Kyoto Protocol?

  • 3. Can Technological Development Save

the World?

  • 4. Carbon Tax Schemes.
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SLIDE 4

(1) Re-balancing emission reductions

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SLIDE 5

The question

  • GTAP-E scenarios show Kyoto with

emissions trading has diverse implication for welfare and efficiency

  • How important is participation, in particular,

the participation of the US.

  • Can re-balancing of emission quota cuts with

all countries taking part in “CO2 quota reduction” make it more acceptable to all countries?

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SLIDE 6
  • Original Kyoto Protocol implementation

(base or S1) vs. Kyoto implementation without the US (S2)

  • (S3) rebalance % emission quota; and

compare S3 with S1.

– Examine how different is the resulting “actual % reduction in S3” vs. “actual % reduction the S1”. Are they significantly different?

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SLIDE 7

Scenario – Alternative rebalancing

  • f emission reductions

Initial Quota Kyoto Reduction (S1) Kyoto Quota (S1) Alternative Reduction (S3) New Rebalance (S3) 1 USA 1,500

  • 35.6

966

  • 25

1125 2 EU 911

  • 22.4

707

  • 20

729 3 EEFSU 777 12.9 877 12.9 877 4 JPN 337

  • 31.8

230

  • 25

253 5 RoA1 258

  • 35.7

166

  • 25

193 6 EEx 683 683

  • 10

615 7 CHIND 1,081 1,081

  • 10

973 8 RoW 623 623

  • 10

561 Total 6,170 5,333 5326 Percent.

  • 13.7
  • 13.7
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SLIDE 8

US participation is critical to significant emission reduction

Country/Regions % Base Emission Reduction Global (S1) % Emission Reduction without USA (S2) 1 USA

  • 12.34

0.33 2 EU

  • 5.88
  • 2.45

3 EEFSU

  • 12.76
  • 5.2

4 JPN

  • 6.36
  • 2.57

5 RoA1

  • 9.2
  • 3.87

6 EEx

  • 7.23
  • 2.85

7 CHIND

  • 32.56
  • 16.75

8 RoW

  • 8.47
  • 3.42

Total

  • 13.7
  • 6.5

Carbon tax for trading 29 10

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SLIDE 9

The impact of rebalancing on CO2 emission reduction is small - why?

Kyoto Base (S1) Alternative Rebalancing (S3) 1 USA

  • 12.34
  • 12.42

2 EU

  • 5.88
  • 5.93

3 EEFSU

  • 12.76
  • 12.88

4 JPN

  • 6.36
  • 6.41

5 RoA1

  • 9.2
  • 9.27

6 EEx

  • 7.23
  • 7.35

7 CHIND

  • 32.56
  • 32.84

8 RoW

  • 8.47
  • 8.57

Total

  • 13.7
  • 13.7

Global Carbon Tax 29 29

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SLIDE 10

While emission reductions are similar, welfare and ToT impacts vary

Worldwide emission trading- Kyoto targets Worldwide emission trading- Rebalancing targets Welfare TOT Welfare TOT USA

  • 0.15

0.17

  • 0.08

0.27 EU

  • 0.03

0.12

  • 0.03

0.13 EEFSU 0.64 0.04 0.69 0.05 JPN

  • 0.06

0.44

  • 0.04

0.49 RoA1

  • 0.40
  • 0.38
  • 0.34
  • 0.39

EEx

  • 0.53
  • 1.47
  • 0.67
  • 1.58

CHIND 0.49 0.78 0.20 0.65 RoW 0.10 0.32 0.02 0.31

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SLIDE 11

EV decomposition - welfare reduction is rebalanced

  • 25
  • 20
  • 15
  • 10
  • 5

5 10

USA EU EEFSU JPN RoA1 EEx CHIND RoW Total (USD Billion)

Kyoto Rebalance

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SLIDE 12

..largely because fewer emission transfers are reallocated at the same carbon price

  • 15
  • 10
  • 5

5 10 15

1 U S A 2 E U 3 E E F S U 4 J P N 5 R

  • A

1 6 E E x 7 C H I N D 8 R

  • W

T

  • t

a l

(USD Billion) KY RE

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SLIDE 13

..ToT differences are relatively small

  • 12
  • 10
  • 8
  • 6
  • 4
  • 2

2 4

1 U S A 2 E U 3 E E F S U 4 J P N 5 R

  • A

1 6 E E x 7 C H I N D 8 R

  • W

T

  • t

a l

(USD Billion) KY RE

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SLIDE 14

… as are differences in allocative efficiency are small

  • 25
  • 20
  • 15
  • 10
  • 5

1 U S A 2 E U 3 E E F S U 4 J P N 5 R

  • A

1 6 E E x 7 C H I N D 8 R

  • W

T

  • t

a l

(USD Billion) KY RE

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SLIDE 15

(1) Conclusions

  • Participation of US is key to successful

reduction of CO2

  • Significant rebalancing of targeted reductions to

include China/Ind etc, has little impact on the level of reductions by each.

  • Welfare losses/gains by region are rebalanced

by changes in emission transfers, not changes in allocative efficiency.

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SLIDE 16

(2) Can Net Energy Exporters Manipulate the Kyoto Protocol?

EEx countries Indonesia, Malaysia, Viet Nam, Mexico, Colombia, Venezuela, rest

  • f Andean Pact, Argentina, rest of Middle East, rest of North Africa,

rest of southern Africa, rest of sub-Saharan Africa.

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SLIDE 17

Change in Welfare (%)

  • 2
  • 1

1 2 3 1 USA 2 EU 3 EEFSU 4 JPN 5 RoA1 6 EEx 7 CHIND 8 RoW

Kyoto Scen_1 Kyoto Scen_2 Kyoto Scen_3

Who loses most from Kyoto Protocol?

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SLIDE 18

What drives EEx’s welfare reduction?

Decomp of Welfare Change in EEx (amount)

  • 25000
  • 20000
  • 15000
  • 10000
  • 5000

5000 Kyoto Scn_1 Kyoto Scn_2 Kyoto Scn_3

8 pref_G1 7 IS_F1 6 tot_E1 5 pop_D1 4 tech_C1 3 endw_B1 2 alloc_A1 1 co2trd Decomp of ToT Change in EEx (amount)

  • 25000
  • 20000
  • 15000
  • 10000
  • 5000

5000 Kyoto Scn_1 Kyoto Scn_2 Kyoto Scn_3 3 pimport 2 pexport 1 pworld

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SLIDE 19

How could EEx recover the welfare loss?

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SLIDE 20

Oil supply shock

Methodology

swap qo("oil","EEx") = to("oil","EEx"); shock qo("oil","EEx") = -10;

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SLIDE 21

Change in Welfare (%, by oil supply shock)

  • 0.04
  • 0.21

0.22

  • 0.12

0.09 0.33

  • 0.1
  • 0.18
  • 0.3
  • 0.2
  • 0.1

0.1 0.2 0.3 0.4 1 USA 2 EU 3 EEFSU 4 JPN 5 RoA1 6 EEx 7 CHIND 8 RoW

Welfare gain from oil supply shock

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SLIDE 22

What is behind this welfare gains?

Decomp of Welfare Change in EEx (amount)

  • 25000
  • 20000
  • 15000
  • 10000
  • 5000

5000 10000 15000 Kyoto Scn_1 Kyoto Scn_3

8 pref_G1 7 IS_F1 6 tot_E1 5 pop_D1 4 tech_C1 3 endw_B1 2 alloc_A1 1 co2trd Decomp of ToT Change in EEx (amount)

  • 25000
  • 20000
  • 15000
  • 10000
  • 5000

5000 10000 15000 Kyoto Scn_1 Kyoto Scn_2 Kyoto Scn_3 Oil Shock 3 pimport 2 pexport 1 pworld

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SLIDE 23

What is the impact of oil supply shock on Kyoto Protocol?

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SLIDE 24

Why oil supply shock reduces emissions?

Impact of oil supply shock on emission

Energy World share of energy input (%) Emission per

  • utput

Chage of

  • utput (%)

Change of

  • utput

(amount) Change of emission (million tons

  • f carbon)

Coal 4.2 0.0244 2.0 1,910 47 Oil 19.0 0.0001

  • 3.2

(13,765)

  • 1

Gas 8.4 0.0057 1.5 2,918 17 Oil products 27.2 0.0044

  • 3.0

(18,404)

  • 81

Electricity 41.2 0.6 6,072 Total

  • 19
  • 1. Expansion effects: Emission decreases

due to less oil consumption.

  • 2. Substitution effects: More demand for

electricity (clean energy !!!).

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SLIDE 25

(2) Conclusions

  • EEx could recover welfare losses from

Kyoto Protocol by reducing oil production to the world market.

  • Oil supply shock can promote emission

reduction.

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SLIDE 26

(3) Can Technological Developments Save the World?

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SLIDE 27

Motivation / Question / Method

  • Motivation:

– Commonly held belief that improvements in emissions efficiency will reduce total emissions

  • Question:

– How much improvement in emissions efficiency is needed to meet Kyoto agreements?

  • Methodology:

– Shock emissions to Kyoto levels and let the model tell us the required level of tech change.

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SLIDE 28

Working at the energy sub- product level

28

Capital-Energy subproduct Electrical Capital Energy subproduct σKE σEN Non- electrical Coal σNEL Gas σNCOAL Petroleum products Oil Non-coal

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SLIDE 29

Point of Focus: Coal

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SLIDE 30

Point of Focus: Coal

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SLIDE 31

What kind of tech development?

  • 2 forms of technological development:

– efficiency of coal use (more energy output for amount of coal) – emissions efficiency of coal use (less emissions per unit of coal)

  • Current model only allows the first
  • Apparently it is “easy” for user to modify
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SLIDE 32

Closures / Shocks / Outcomes

  • Same as Kyoto with no ETS but with :

swap afall("coal", prod_comm, reg)=qf("nely", prod_comm, REG);

  • Model will not solve….
  • Why not? Maybe tech change in coal
  • prod. cannot reduce emissions by enough
  • Test by shocking

– afall(“nely", prod_comm, reg); and – afall(“coal",prod_comm, reg)

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SLIDE 33

Annex 1 emissions unchanged

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SLIDE 34

USA qo: decrease in coal output, increase in

  • il products
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SLIDE 35

USA pm: Changes in qo driven by price

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SLIDE 36

Conclusions / Further work

  • Tech change may contribute towards

lowering emissions

  • But it is unlikely to be the only factor to

solve the problem

  • We need other mechanisms.
  • Further step could be to modify model to

allow changes in emission intensity of coal

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SLIDE 37

(4) Carbon Mitigation Schemes

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SLIDE 38

Policy Options

  • End goal: 10% global CO2 emissions

reduction target

  • What is the most efficient way to achieve

this reduction? Price vs. Quantity?

– Option 1: uniform carbon tax – Option 2: global emissions trading

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SLIDE 39

Policy Comparison

$ million

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SLIDE 40

Observations

  • Globally, carbon tax is more efficient, but

worldwide trading seems more fair

  • Welfare impacts vary among policy options

– Developing vs. developed

  • Drivers of welfare change

– Allocative efficiency – Terms of Trade

  • Limitations

– Ignore current negotiations, dev of carbon markets, political viability – Incomplete picture

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SLIDE 41

Allocative Efficiency

$ million

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SLIDE 42

Allocative Effects

  • Cost structures of industries matter

– A uniform global carbon tax disproportionately impacts energy-intensive industries – they have a larger emissions rate per unit of output – Developing countries have more energy- intensive industries, in relation to developed countries – Therefore, developing countries – China and India – are disproportionately affected by the uniform carbon tax

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SLIDE 43

Terms of Trade

$ million

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SLIDE 44

Terms Of Trade

  • A global carbon tax disproportionately

taxes developing nations

  • Price changes affect real exchange rates,

which result in TOT changes

  • These two policies affect developing and

developed countries differently

  • China and India’s TOT deteriorate with a

global carbon tax, but improve with a global emissions trading policy

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SLIDE 45

Conclusions

  • The way we reduce emissions matters
  • In formulating any carbon emissions

reduction scheme, welfare implications should be consulted

– In this example, allocative efficiency and TOT were the key drivers

  • Distributional effects reveals how policy

affects individual country welfare

  • This is starting point for making well-

informed climate policy decisions

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SLIDE 46

Climate Change Negotiations: Lessons from extensions

  • Getting the US should not be difficult if

flexibility is shown by all

  • Net energy exporting countries may

manipulate markets to alter impacts

  • Technical change may help, but need
  • ther other mechanisms
  • Alternative carbon schemes may have

differing distributional implications.