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 e U units of emissions.  Denote Home’s carbon tax by t e  Assume  firms engage in marginal cost pricing  e u 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 p u =1+t e e u  ROW producers charge p u * =1 < p u

 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 (e u )  Multiply by Canadian carbon price (t e )  S S ubtract carbon taxes already paid by producer ubtract carbon taxes already paid by producer  Charge the difference as a “ border carbon adj ustment” (BCA=t e e u )

 Need to calculate the carbon content of  Need to calculate the carbon content of imported goods  Need to calculate footprints  e u 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 paid abroad? id b d?  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  Violate MFN rules? Vi l MFN l ?

 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 rules l  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 * =1 producer charges p u =p u  Canadian consumers pay p u +t e e u regardless of where U was produced  Canadian producers can sell U in ROW market at p u =1 t 1  Observations  Observations  Canadian producers on even footing with imports and export-competition p p  no need to “ rebate” pollution taxes to exporters

 S  S uppose there’s a downstream product D uppose there s a downstream product D produced using a D 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 e e u  D-producers who use U as an input are rebated CCT-taxes paid  p D =p U +a D =1+a D  Price of D for Canadian consumers = p D +t e e u regardless of where the good was produced

 Price of Canadian-produced D in ROW  Price of Canadian produced D in ROW * =p D =1+a D =p D  Implication: Canadian producers are on level- playing field with ROW-produced goods both i C in Canadian market and abroad di k t d b d

 In Canada, p U = 1+t e e u while p U * = 1+t e e u  In Canada, p U 1 t e u while p U 1 t e u  assumes BCA charged on imports of U  p D = 1+t e e u +a D D u D  In order to put Canadian D-exporters on even-footing with ROW producers in ROW market, would need to “ rebate” them taxes k t ld d t “ b t ” th t paid by suppliers of upstream good  r= t e e  r t e u

 “ 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 S ubsidies and Countervailing Measures d C ili M (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 regulated in trade partner l d i d  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 p p ( heldon, 2011, p. 1) 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  carbon embodied in Canadian exports = 174 Mt b b di d i C di 174 M

 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 olution: use baselines and exemptions? B for product X  E.g. posit baseline footprint e X B  All producers assigned same baseline footprint e X 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 e U  submits footprint e U to taxation authority  submits footprint e U to taxation authority  Downstream Firm  buys upstream product at p U +t e e U  submits receipts to tax authority for reimbursement of b it i t t t th it f i b t f t e e U  gets IS O-14067 certified  calculates in house footprint e  calculates in-house footprint e D  submits sum of footprints e D +e U to taxation authority  Consumer  pays p D +t e [e D +e U ]

 Upstream Firm p Fixed costs may be prohibitive for  gets IS O-14067 certified small firms  calculates own footprint e U  submits footprint e U to taxation authority  submits footprint e U to taxation authority  Downstream Firm  buys upstream product at p U +t e e U  submits receipts to tax authority for reimbursement of b it i t t t th it f i b t f t e e U  gets IS O-14067 certified  calculates in house footprint e  calculates in-house footprint e D  submits sum of footprints e D +e U to taxation authority  Consumer  pays p D +t e [e D +e U ]

 Upstream Firm p  gets IS O-14067 certified Fixed cost per product line  calculates own footprint e U  submits footprint e U to taxation authority  submits footprint e U to taxation authority  Downstream Firm  buys upstream product at p U +t e e U  submits receipts to tax authority for reimbursement of b it i t t t th it f i b t f t e e U  gets IS O-14067 certified  calculates in house footprint e  calculates in-house footprint e D  submits sum of footprints e D +e U to taxation authority  Consumer  pays p D +t e [e D +e U ]