Conference In Honour of Dr. Colin Clark: Conference In Honour of Dr. - - PowerPoint PPT Presentation

Carol McAusland & Nouri Naj j ar University of British Columbia Conference In Honour of Dr. Colin Clark: Conference In Honour of Dr. Colin Clark: Developments and Challenges in Fisheries Economics

 Climate Change concerns  Climate Change concerns  Policies commonly considered

 Cap & Trade (for manufacturers and utilities)  Emission Taxes

 based on emissions generated

Fuel Taxes

 Fuel Taxes

 levied on fuels

 e.g. BC’s “ carbon tax”

 Good U produced using one unit of numeraire  Good U produced using one unit of numeraire

input G (for Generic) and eU units of emissions.

 Denote Home’s carbon tax by t e  Assume

 firms engage in marginal cost pricing  eu identical across countries  ROW’s carbon tax is zero  ROW s carbon tax is zero

 Can’ t force trade partners to levy similar  Can t force trade partners to levy similar

taxes on own producers

 leakage  disadvantage domestically produced goods vis-à-

vis imports

 Using our simple model  Using our simple model

 Home producers of U will charge pu =1+t eeu  ROW producers charge pu* =1 < pu

 A.k.a. Border Carbon Adj ustments (BCAs)  A.k.a. Border Carbon Adj ustments (BCAs)  In theory:

 Calculate the carbon content of imported goods

(eu)

 Multiply by Canadian carbon price (t e)

S ubtract carbon taxes already paid by producer

 S

ubtract carbon taxes already paid by producer

 Charge the difference as a “ border carbon

adj ustment” (BCA=t e eu)

 Need to calculate the carbon content of  Need to calculate the carbon content of

imported goods

 Need to calculate footprints

 eu may vary across countries/ producers

 What if the trade partner regulates carbon  What if the trade partner regulates carbon

via command and control regulation?

 How would we calculate the implicit carbon tax

id b d? paid abroad?

 What if foreign firms are regulated via

marketable permits and their permit price marketable permits and their permit price drops?

 Do we impose a higher BCA on their goods?

 Exempt countries/ overseas sectors that have

active, comparable climate policy and/ or lower emission intensity than domestic competitors

 Complications

Vi l MFN l ?

 Violate MFN rules?

 If Canada goes the cap & trade (and BCA) route

g p ( ) instead

 Will likely grandfather some permits

 Do we need to grant equivalent concessions to  Do we need to grant equivalent concessions to

imported goods?

 Using average-tax-paid by Canadian competitors will be

inefficient

 Marginal carbon tax will be lower for imports than for

domestically produced goods

 Charging full tax will likely violate National Treatment

l rules

 S

imilarly, requiring importers to purchase Canadian permits for each tonne of embodied carbon will likely violate National Treatment as well as raise price of p Canadian permits.

 levied on every good consumed in Canada  levied on every good consumed in Canada

 regardless of where the good is produced

 based on carbon footprint of the good you

buy

 intermediate goods are CCT-free (rebated)  If ROW producers pay emission taxes in own

country, the onus is on them to get rebates before exporting before exporting

 No tax on carbon emitted means every  No tax on carbon emitted means every

producer charges pu=pu

*=1

 Canadian consumers pay pu+t eeu regardless of

where U was produced

 Canadian producers can sell U in ROW market

t 1 at pu=1

 Observations  Observations

• Canadian producers on even footing with imports

and export-competition

p p

• no need to “ rebate” pollution taxes to exporters

 S

uppose there’s a downstream product D

 S

uppose there s a downstream product D produced using aD units of G (generic input) and U

 Assume D-production itself doesn’ t generate

any emissions

 In Canada, tax-inclusive price of U input is  In Canada, tax inclusive price of U input is

1+t eeu

 D-producers who use U as an input are

rebated CCT-taxes paid

 pD=pU+aD=1+aD  Price of D for Canadian consumers = pD+t eeu

regardless of where the good was produced

 Price of Canadian-produced D in ROW  Price of Canadian produced D in ROW

=pD=1+aD=pD

*

 Implication: Canadian producers are on level-

playing field with ROW-produced goods both i C di k t d b d in Canadian market and abroad

 In Canada, pU = 1+t eeu while pU

*= 1+t eeu

 In Canada, pU

1 t eu while pU 1 t eu

 assumes BCA charged on imports of U

 pD= 1+t eeu+aD

D u D

 In order to put Canadian D-exporters on

even-footing with ROW producers in ROW k t ld d t “ b t ” th t market, would need to “ rebate” them taxes paid by suppliers of upstream good

 r= t ee  r t eu

 “ rebate” is only paid to exporters of D  rebate is only paid to exporters of D  “ rebate” is for taxes paid by a different firm  Hard to imagine this not being construed as

an export subsidy

 Export subsidies prohibited by Agreement on

S b idi d C ili M S ubsidies and Countervailing Measures (AS CM)

 relative to pollution taxes or cap & trade w/  relative to pollution taxes or cap & trade w/

BCAs

 don’ t need to know how/ whether carbon is

l d i d regulated in trade partner

 follows destination principle

 precedents re Value-Added Taxation (VAT) suggest  precedents re Value Added Taxation (VAT) suggest

exempting intermediate goods from CCT will not run afoul of WTO  in contrast emission taxes follow origin principle  in contrast , emission taxes follow origin principle

 rebates on upstream pollution-taxes paid will likely

be construed as an export subsidy

 Most analyses motivated by provisions for

BTAs in US policy proposals

 e.g. 2009 Waxman-Markey bill

 contained a provision for the use of “ carbon tariffs” on

imports, but not exports (S heldon, 2011, p. 1) p p ( p )

 Usual political economy story?  Usual political economy story?

 import competing industries get all the attention

 US

is net importer of carbon

 1997  1997

 carbon embodied in Canadian imports = 101 Mt  carbon embodied in Canadian exports = 155 Mt

 2001

 carbon embodied in Canadian imports = 158 Mt

b b di d i C di 174 M

 carbon embodied in Canadian exports = 174 Mt

 have to do it for BCAs too  have to do it for BCAs too  IS

O 14067 (in development)

 “ Requirements for the quantification and

communication of the carbon footprint of products”

 Probably can’ t force ROW producers to get  Probably can t force ROW producers to get

IS O 14067 certified

 S

• lution: use baselines and exemptions?

 E.g. posit baseline footprint eX

B for product X

 All producers assigned same baseline footprint eX B

unless are certified as having a smaller footprint unless are certified as having a smaller footprint

 Choice of baseline important

 e.g. if use Canadian average, then high emission ROW

products won’ t be sufficiently penalized products won’ t be sufficiently penalized

 if use international worst practices, then small green

producers get punished excessively

 Upstream Firm

p

 gets IS

O-14067 certified

 calculates own footprint eU  submits footprint eU to taxation authority  submits footprint eU to taxation authority

 Downstream Firm

 buys upstream product at pU+t eeU

b it i t t t th it f i b t f

 submits receipts to tax authority for reimbursement of

t eeU

 gets IS

O-14067 certified

 calculates in house footprint e  calculates in-house footprint eD  submits sum of footprints eD+eU to taxation authority

 Consumer

 pays pD+t e[eD+eU]

 Upstream Firm

Fixed costs may be

p

 gets IS

O-14067 certified

 calculates own footprint eU  submits footprint eU to taxation authority prohibitive for small firms  submits footprint eU to taxation authority

 Downstream Firm

 buys upstream product at pU+t eeU

b it i t t t th it f i b t f

 submits receipts to tax authority for reimbursement of

t eeU

 gets IS

O-14067 certified

 calculates in house footprint e  calculates in-house footprint eD  submits sum of footprints eD+eU to taxation authority

 Consumer

 pays pD+t e[eD+eU]

 Upstream Firm

p

 gets IS

O-14067 certified

 calculates own footprint eU  submits footprint eU to taxation authority Fixed cost per product line  submits footprint eU to taxation authority

 Downstream Firm

 buys upstream product at pU+t eeU

b it i t t t th it f i b t f

 submits receipts to tax authority for reimbursement of

t eeU

 gets IS

O-14067 certified

 calculates in house footprint e  calculates in-house footprint eD  submits sum of footprints eD+eU to taxation authority

 Consumer

 pays pD+t e[eD+eU]

 Upstream Firm

fixed + variable

p

 gets IS

O-14067 certified

 calculates own footprint eU  submits footprint eU to taxation authority fixed + variable costs to both firms and tax authority  submits footprint eU to taxation authority

 Downstream Firm

 buys upstream product at pU+t eeU

b it i t t t th it f i b t f

 submits receipts to tax authority for reimbursement of

t eeU

 gets IS

O-14067 certified

 calculates in house footprint e  calculates in-house footprint eD  submits sum of footprints eD+eU to taxation authority

 Consumer

 pays pD+t e[eD+eU]

 Upstream Firm

p

 gets IS

O-14067 certified

 calculates own footprint eU  submits footprint eU to taxation authority  submits footprint eU to taxation authority

 Downstream Firm

 buys upstream product at pU+t eeU

b it i t t t th it f i b t f

 submits receipts to tax authority for reimbursement of

t eeU

 gets IS

O-14067 certified

 calculates in house footprint e  calculates in-house footprint eD  submits sum of footprints eD+eU to taxation authority

 Consumer

retailer needs computerized  pays pD+t e[eD+eU] retailer needs computerized inventory system to keep track of different tax rates per product per manufacturer

Country Compliance Cost (Firms)

2003

Admin Cost (Gov't)

2006

GDP GDP adjusted compliance costs GDP adjusted admin costs # of Rates Filings / year Canada (GS T) 0.6 - 1.2 (1994) 0.5 (1992)

701/771 0.09% ‐ 0.17% 0.065%

1 1,4 or 12 UK 1.6 (2005) 7.6

2,025/2,1 46 0.079% 0.35%

2 1 or 4 Denmark 0.7 1.1

215/277 0.33% 0.40%

1 2,4 or 12 N th l d 1 02 4 1

544/685 0 19% 0 60%

2 2 4 12 Netherlands 1.02 4.1

544/685 0.19% 0.60%

2 2,4 or 12 Norway 0.143

228 0.063%

3 1 or 6 S weden 0.372 2.7

319/404 0.12% 0.67%

3 1 or 12

 Tax fuels only  Tax fuels only

 captures ~80%

• f US

emissions

 “ cumulative carbon tax” becomes “ cumulative

fuel-based carbon tax” (CFCT)

 would still need producers to keep track of fuel

footprint in order to j ustify export “ rebates” footprint in order to j ustify export rebates

 Other hybrid schemes

 TBD