International spillovers and carbon pricing policies Geoffroy Dolphin - - PowerPoint PPT Presentation

Carbon Pricing

International spillovers and carbon pricing policies

Geoffroy Dolphin1, Michael Pollitt1

1Cambridge Judge Business School and EPRG

IAEE European Conference

• Sept. 4-6, 2017

Vienna, Austria

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Motivation

◮ Multilateral action (UNFCC) has delivered “weak”

environmental results

Source: National Observer, based on NOAA data 2 / 19

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◮ Uncoordinated (carbon pricing) initiatives

Source: World Bank (2016)

Schemes list 3 / 19

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Research Objectives

◮ Focus: learning, both in policy and technology

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Research Objectives

◮ Focus: learning, both in policy and technology ◮ Quantify/assess those effects for domestic policy developments

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Proposition

◮ Current policy developments linked to demonstration effects

and technological improvements;

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Proposition

◮ Current policy developments linked to demonstration effects

and technological improvements;

◮ (Spillover) effects ∼ trade relationships with carbon abating

partners

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Proposition

◮ Current policy developments linked to demonstration effects

and technological improvements;

◮ (Spillover) effects ∼ trade relationships with carbon abating

partners

Corollary

Jurisdictions more likely to introduce climate mitigation policies are “close” to those with existing abatement policies and technologies

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Literature

Trade and the environment

◮ Barrett (1994): non-cooperative equilibrium, trade and

emissions abatement

◮ Copeland and Taylor (2005): analysis of abatement

commitments by the “rich North” in the wake of Kyoto

◮ Frankel and Rose (2005): trade flows and local pollutants

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Literature

Trade and the environment

◮ Barrett (1994): non-cooperative equilibrium, trade and

emissions abatement

◮ Copeland and Taylor (2005): analysis of abatement

commitments by the “rich North” in the wake of Kyoto

◮ Frankel and Rose (2005): trade flows and local pollutants

Signalling/Technological Spillovers

◮ Grossman and Helpman (1991): trade and knowledge

spillovers

◮ Fankhauser et al. (2016): climate policy

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The Model

◮ Static GE, CRS (abatement) technology, 2 inputs: K,L

(inelastic supply)

◮ Exogenous output prices: (p,1) ◮ n countries, non-cooperative eq.

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The Model

◮ Static GE, CRS (abatement) technology, 2 inputs: K,L

(inelastic supply)

◮ Exogenous output prices: (p,1) ◮ n countries, non-cooperative eq. ◮ Clean (y) sector y = F(Ky, Ly)

Dirty (x) sector x = B(Kx, Lx) − φB(Kx, Lx) = (1 − φ)B(Kx, Lx) (1) e = Ω(ψ)

Abatement technology “quality”

χ(φ)

• Abatement

function

B(Kx, Lx) (2)

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Abatement technology and spillovers

ψi ≡ C

• h∈Θ

Γi,hσh,

• h∈Θ

Γi,h¯ κh

• (3)

◮ ¯

κh: partner h abatement technology stock

◮ σh: partner h signal ◮ Γi,h: bilateral trade-weight

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Data

Panel (unbalanced)

◮ 1990-2014 ◮ 121 countries, 50 US States (DC)

Sources

◮ CO2 price: own ‘survey’ ◮ CO2 emissions: IEA (2016) ◮ Value added: United Nations Statistics Division (2017a,b) ◮ Bilateral trade: IMF, Direction of Trade (2017)

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Hypotheses

Signalling

◮ Import- or export-related ◮ Free riding effect?

Technological spillovers

◮ Imports: embodied knowledge ◮ Exports: exchange of ideas

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Data – policy development

1990 1995 2000 2005 2010 10 20 30 40 50 60 70 80 2015 $US (/tCO2e)

Emissions-weighted Carbon Price

Sweden Finland Slovenia Norway Switzerland Denmark New Zealand World

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Signalling/demonstration

◮ Climate policy developments: cum. # of climate laws passed

1990 1995 2000 2005 2010 1 2 3 4 Number of Laws

Trade-weighted Climate Laws (imports)

UK Finland Slovenia Norway Switzerland Chile New Zealand United States 1990 1995 2000 2005 2010 1 2 3 4 Number of Laws

Trade-weighted Climate Laws (exports)

UK Finland Slovenia Norway Switzerland Chile New Zealand United States

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◮ Carbon pricing: # of carbon pricing schemes, CO2 price

1990 1995 2000 2005 2010 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 (share of total goods imports)

Imports from carbon pricing jurisdictions

Sweden Finland Slovenia Norway Switzerland Denmark New Zealand United States Canada 1990 1995 2000 2005 2010 0.0 0.2 0.4 0.6 0.8 (share total goods exports)

Exports to carbon pricing jurisdictions

Sweden Finland Slovenia Norway Switzerland Denmark New Zealand United States Canada

CO2 price 13 / 19

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Technology

◮ Cumulated RE installed capacity

1990 1995 2000 2005 2010 5000 10000 15000 20000 25000 30000 35000 40000 MW

Trade-weighted installed RE capacity (imports)

UK Finland Slovenia Norway Switzerland New Zealand United States World 1990 1995 2000 2005 2010 5000 10000 15000 20000 25000 30000 35000 40000 MW

Trade-weighted installed RE capacity (exports)

UK Finland Slovenia Norway Switzerland New Zealand United States World

Pollution payments 14 / 19

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Results

Signalling

◮ Pricing (imports): implementation (+,t), stringency (+, t) ◮ Pricing (exports): implementation (/), stringency (-,t, t − 1) ◮ CO2 price (imports): implementation (/), stringency

(+,t, t − 1)

◮ CO2 price (exports): implementation (/), stringency (-,t − 1) ◮ Climate policy: implementation (/), stringency (+,t − 1)

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Results

Signalling

◮ Pricing (imports): implementation (+,t), stringency (+, t) ◮ Pricing (exports): implementation (/), stringency (-,t, t − 1) ◮ CO2 price (imports): implementation (/), stringency

(+,t, t − 1)

◮ CO2 price (exports): implementation (/), stringency (-,t − 1) ◮ Climate policy: implementation (/), stringency (+,t − 1)

Technology spillover

◮ RE cap: implementation (+), stringency (/) ◮ Lagged, import-weighted

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General environment

◮ GDP: ($1000) raises the ECP by $0.11 ◮ EU: $4.6 – $5.2 ◮ Trade openness: -$0.01, if any ◮ Altruism effect

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Conclusions

◮ Carbon pricing policies linked to demonstration and

technological spillover effects

◮ Some free riding effect (stringency) ◮ “Diffusion” process through import channels ◮ Trade can foster carbon pricing policies development

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Bibliography (I)

Barrett, S. (1994). Self-enforcing international environmental

• agreements. Oxford Economic Papers, 46:878–894.

Copeland, B. and Taylor, M. (2005). Free trade and global warming: a trade theory view of the kyoto protocol. Journal of Environmental Economics and Management, 49:205–234. Fankhauser, S., Gennaioli, C., and Collins, M. (2016). Do international factors influence the passage of climate change legislation? Climate Policy, 16(3):318–331. Frankel, J. and Rose, A. (2005). Is trade good or bad for the environment? sorting out the causality. The Review of Economics and Statistics, 87(1):85–91. Grossman, G. and Helpman, E. (1991). Trade, knowledge spillovers, and

• growth. European Economic Review, 35:517–526.

World Bank (2016). State and trends of carbon pricing. Washington, DC.

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Bibliography (II)

[data1] IEA (2016). IPCC fuel combustion emissions (2006 guidelines). [data2] IMF, Direction of Trade (2017). [data3] United Nations Statistics Division (2017a). UNdata - Table 2.3 Value added by industries at constant prices (ISIC Rev. 4). [data4] United Nations Statistics Division (2017b). UNdata - Table 2.6 Value added by industries at constant prices (ISIC Rev. 4).

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1990 1995 2000 2005 2010 5 10 15 20 25 (2014 USD/tCO2)

Trade-weighted CO2 price (jurisdiction of origin)

Sweden Finland Slovenia Norway Switzerland Denmark New Zealand 1990 1995 2000 2005 2010 5 10 15 20 (2014 USD/tCO2)

Trade-weighted CO2 price (jurisdiction of destination)

Sweden Finland Slovenia Norway Switzerland Denmark New Zealand

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◮ Pollution Payments

1990 1995 2000 2005 2010 0.00000 0.00002 0.00004 0.00006 0.00008 0.00010

Trade-weighted pollution payments (imports)

Sweden Finland Slovenia Norway Switzerland Denmark New Zealand 1990 1995 2000 2005 2010 0.00000 0.00002 0.00004 0.00006 0.00008

Trade-weighted pollution payments (exports)

Sweden Finland Slovenia Norway Switzerland Denmark New Zealand

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2008 2011 2014 0.1 0.2 0.3 0.4 (% total imports)

Imports from carbon pricing jurisdictions

California New York Washington Massachusetts Maryland Connecticut Pennsylvania New Jersey Rhode Island 2002 2005 2008 2011 2014 0.0 0.2 0.4 0.6 0.8 1.0 (% total exports)

Exports to carbon pricing jurisdictions

California New York Washington Massachusetts Maryland Connecticut Pennsylvania New Jersey Rhode Island

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