How m uch w ould the Kyoto protocol cost to consum ers? Mnica - - PowerPoint PPT Presentation

Mònica Serrano & Erik Dietzenbacher

This project is funded by the European Commission, Research Directorate General as part

• f the 7th Framework Programme, Theme 8: Socio-Economic Sciences and Humanities.

Grant Agreement no: 225 281

How m uch w ould the Kyoto protocol cost to consum ers?

Final W I OD Conference – Groningen, 2 4 – 2 6 April, 2 0 1 2

• I ntroduction
• The price input-output m odel
• W I OD and assum ptions
• Scenario analysis
• Conclusions

Outline

2 / Serrano & Dietzenbacher – WIOD Final Conference

• I ntroduction
• The price input-output m odel
• W I OD and assum ptions
• Scenario analysis
• Conclusions

Outline

3 / Serrano & Dietzenbacher – WIOD Final Conference

• How m uch w ould the Kyoto Protocol cost to

consum ers?

• Literature:
• Five-year accounting period 2008-2012 is near to be

accomplished.

• Consumers (we) need to have direct and clear

information.

Motivation

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• Weyant (1999)
• Little attention paid by IO literature.

• W e w anted to know w hat w ould have been the cost

for final consum ers if Annex B countries had fulfilled their Kyoto em ission targets:

• WIOD data.
• For each country we estimate the amount of emission

that exceed the target.

• We assume that industries incur environmental cost

per ton of extra emissions to reduce them.

• We further assume that these costs will pass along to

consumers in the form of higher prices of goods.

• Finally, cost to consumers is measured as a variation

in the cost of their consumption bundle.

W hat w e do

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• I ntroduction
• The price input-output m odel
• W I OD and assum ptions
• Scenario analysis
• Conclusions

Outline

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• I nter-country input-output table:

Z11 Z12 Z1r h11 h12 h1r x1 Z21 Z22 Z2r h21 h22 h2r x2 Zr1 Zr2 Zrr hr1 hr2 hrr xr (v1)’ (v2)’ (vr)’ (x1)’ (x2)’ (xr)’

Value of output = value of its interm ediate inputs + value of prim ary inputs

1 1 2 2 j j j j n nj j

p x p z p z p z wl = + + + + 

Price I O m odel

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• I n m atrix term s:
• W ith a m onetary I OT:

' ' ' = + p p A v

p price per unit of sector’s output A input coefficients L = (I – A) -1 Leontief inverse v primary cost per unit of output

1

' '( ) '

−

= − = p v I A v L

( )

' 1 1 1 = p 

Price I O m odel

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• Cost on extra em issions:
• New price:
• I m pact on prices of this extra cost:

' ' ' ' = + + p p A v d ' ' ' ' ∆ = − = p p p d L

Price I O m odel

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• CO2 abatement cost, environmental taxes, EUA in EU-ETS,…

d

• Price I O m odel:
• Extra cost to consum ers = consum ption price index

1 1 n i i i L n i i i

p c CPI p c

= =

= ∑

∑

Price I O m odel

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• It’s assumed that all producers fully pass their costs on

to the buyers.

• So, as a last resort, it’s the consumer who fully bears the

extra cost.

• I ntroduction
• The price input-output m odel
• W I OD and assum ptions
• Scenario analysis
• Conclusions

Outline

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• W I OT at current prices 2 0 0 6 :
• Air em issions of CO2, N 2O and CH 4 expressed in

kilotons of CO2 equivalent:

• Conversion factors: CO2 1

N 2O 310 CH 4 21

Data

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• 35 industries; 40 countries + RoW.
• Release April 2012.

• 1 9 9 5 as an approxim ation of Kyoto base year 1 9 9 0 .
• 2 0 0 6 as the hypothetical year of actuation.
• Em issions from all sectors ( not only energy) are

considered.

• Household em issions are not considered.

Assum ptions

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• Environm ental cost = 0 :
• Environm ental cost on extra em issions ( d = ζe) :
• I t’s assum ed that USA ratified the Kyoto protocol in

2 0 0 5 .

• If country fulfilled their Kyoto target in 2006.
• For non-Annex B countries.
• Emissions in 2006 minus emission target in 2012

multiplied by monetary cost.

Assum ptions

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• I ntroduction
• The price input-output m odel
• W I OD and assum ptions
• Scenario analysis
• Conclusions

Outline

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Scenario 1 Scenario 2 Scenario 3 Environmental cost $26.3 tn/CO2 Environmental cost $100 tn/CO2 Environmental cost $75.3 tn/CO2

• I: Kyoto targets for Annex B countries
• II: China has had the same target as USA (i.e. 93)
• III: China had agreed to reduce the same amount of emissions that

USA does (i.e. 130)

• IV: III + all non-Annex B countries have had USA target (i.e. 93)

(* ) Considering USA ratified the protocol in 2005.

Different Scenarios

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Scenario 1 ($26.3 tn/CO2) Scenario 2 ($100 tn/CO2) I

0.08% 0.30%

II

0.18% 0.69%

III

0.13% 0.50%

IV

0.37% 1.40%

Results: Average CPI

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• Δ prices ( average) :

Scenario 1 ($26.3 tn/CO2) Scenario 2 ($100 tn/CO2) I

Max LTU 0.28% 1.06% Min BRA 0.01% 0.03%

II

Max CHN 2.30% 8.73% Min BRA 0.03% 0.10%

III

Max CHN 1.18% 4.48% Min BRA 0.02% 0.06%

IV

Max IDN 1.92% 7.28% Min GRC 0.10% 0.37%

Results: Max & Min CPI

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• Δ prices ( m axim um & m inim um ) :

• I ntroduction
• The price input-output m odel
• W I OD and assum ptions
• Scenario analysis
• Conclusions

Outline

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• W hat w ould have happened if Kyoto countries had

paid a cost for the extra-em issions?

• Could w e have borne the cost of Kyoto protocol in

term s of “inflation”?

• How m uch w ould the Kyoto protocol cost to

consum ers?

Conclusions

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• “Nothing” in terms of price increase.
• Yes.
• Not too much.

• W e have to pay attention to the role played by China

and other non-Annex B countries.

• W e have to sm ooth som e assum ptions over.
• This exercise provide a roughly idea about w hat

w ould have been the cost of fulfil the Kyoto protocol.

Conclusions

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This project is funded by the European Commission, Research Directorate General as part

• f the 7th Framework Programme, Theme 8: Socio-Economic Sciences and Humanities.

Grant Agreement no: 225 281

Thank you for you attention

Final W I OD Conference – Groningen, 2 4 – 2 6 April, 2 0 1 2