Taxing Carbon along the Value Chain. A WIOD CGE Application. Oliver - - PowerPoint PPT Presentation

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Motivation WIOD CGE Model Simulation Results Conclusion

Taxing Carbon along the Value Chain. A WIOD CGE Application.

Oliver Schenker, Simon Koesler, Andreas Löschel

Zentrum für Europäische Wirtschaftsforschung WIOD Final Conference, Groningen 25.04.2012

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Motivation WIOD CGE Model Simulation Results Conclusion

Relevance

■ Lessons from Durban et al.: Long way to go to reach a global

climate agreement.

■ Subglobal climate coalitions still want to proceed. ■ But then: carbon leakage, competitveness concerns.

■ Simulation studies: IPCC (2007): Carbon Leakage from Kyoto:

5 - 20%.

■ Econometric studies: Aichele and Felbermayr (2011) 8%

increase of trade in embodied carbon from Non-Annex B to Annex B countries.

■ Peters et al. (2011): Net emissions transfer through

international trade from developing to developed countries: 1990: 0.4 Gt CO2, 2008: 1.6 Gt CO2

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Motivation WIOD CGE Model Simulation Results Conclusion

Border Measures

■ Idea: Implement border measures (BTA) to adress those

issues.

■ Add a border tax on foreign unregulated CO2 emissions.

■ Markusen (1975), Copeland (1996): Border measures belong

to the optimal policy portfolio in transboundary pollution problems.

■ Böhringer et al. (2011) analyse such tariff on embodied carbon

by using a CGE model with GTAP 7.1 data.

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Motivation WIOD CGE Model Simulation Results Conclusion

Vertical Specialization

■ Increasing vertical specialization since WWII. ■ Hummels et al. (2001): International trade caused by VS

increased by 30% (1970-1990)

■ More complex trade networks may lead to double regulation

• f traded CO2.

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Motivation WIOD CGE Model Simulation Results Conclusion

Non-EU Embodied Carbon in EU products

0.05 0.1 0.15 0.2 0.25 0.3 0.35 17t19 50t52 C CCP CPN EGW F FBS Man Metal NaP NMM PPP PSPS TRN kg CO2 per USD Output AUS BRA CAN CHN IND MEX RUS USA EAs

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Motivation WIOD CGE Model Simulation Results Conclusion

Outline

Motivation WIOD CGE Model Calibration Scenarios Simulation Results Carbon Leakage Sectoral Effects Welfare Vertical Specialization Conclusion

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Motivation WIOD CGE Model Simulation Results Conclusion Calibration Scenarios

WIOD CGE Model

Computable General Equilibrium (CGE) Model in the tradition of PACE, etc.

■ Production through nested CES functions with CRS. ■ International linkages: Armington (1969) trade, no factor

mobility, no transport costs

■ Substitution of energy by value added. ■ BTA: Measuring embodied carbon and value it with coalition

carbon price.

■ Formulated as Mixed Complementarity Problem 7

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Motivation WIOD CGE Model Simulation Results Conclusion Calibration Scenarios

Calibration

■ IO data from the WIOD project: 40 countries, 35 sectors,

1995-2005-2009.

■ Aggregated to 11 regions, 14 sectors ■ Sectoral CO2 data from WIOD environmental satellite

accounts

■ Behavioral parameters taken from Koesler and Schymura

(2012).

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Motivation WIOD CGE Model Simulation Results Conclusion Calibration Scenarios

Scenarios

• 1. Reduction only

■ 20% CO2 reduction relative to baseline in a coalition of EU,

Australia, developed East Asian countries (Japan, South Korea, Taiwan)

■ No border measures

• 2. BTA full

■ Same reduction as in Reduction only, ■ but accompanied by a tariff on embodied carbon. ■ if crosses border into coalition: embodied carbon priced with

internal carbon price,

■ no matters where the carbon comes from.

• 3. BTA corrected

■ As BTA full, ■ but only embodied carbon from non-regulated countries is

taken into account.

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Motivation WIOD CGE Model Simulation Results Conclusion Carbon Leakage Sectoral Effects Welfare Vertical Specialization

Effects on Carbon Leakage

‐10.77 ‐2.15 ‐2.03 ‐12 ‐10 ‐8 ‐6 ‐4 ‐2 REDUCTION ONLY BTA CORRECTED BTA FULL [%] Carbon Leakage

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Motivation WIOD CGE Model Simulation Results Conclusion Carbon Leakage Sectoral Effects Welfare Vertical Specialization

Sectoral effects: Coke

‐22 ‐17 ‐12 ‐7 ‐2 AUS BRA CAN CHN EAs EUR IND MEX RUS USA [%] Change Output

Coke, Refined Petroleum and Nuclear Fuel

BTA FULL BTA CORRECTED REDUCTION ONLY

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Motivation WIOD CGE Model Simulation Results Conclusion Carbon Leakage Sectoral Effects Welfare Vertical Specialization

Sectoral effects: Metal

‐15 ‐10 ‐5 5 AUS BRA CAN CHN EAs EUR IND MEX RUS USA [%] Change Output

Basic and Fabricated Metal

BTA FULL BTA CORRECTED REDUCTION ONLY 12

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Motivation WIOD CGE Model Simulation Results Conclusion Carbon Leakage Sectoral Effects Welfare Vertical Specialization

Welfare effects

‐1.8 ‐1.6 ‐1.4 ‐1.2 ‐1 ‐0.8 ‐0.6 ‐0.4 ‐0.2 0.2 BRA CAN CHN EAs EUR IND MEX RUS USA [%] Hicks EV BTA FULL BTA CORRECTED REDUCTION ONLY

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Motivation WIOD CGE Model Simulation Results Conclusion Carbon Leakage Sectoral Effects Welfare Vertical Specialization

Change in VS share of total exports

‐14 ‐12 ‐10 ‐8 ‐6 ‐4 ‐2 2 AUS CHN EAS EUR RUS [%] Change BTA FULL BTA CORRECTED REDUCTION ONLY

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Motivation WIOD CGE Model Simulation Results Conclusion

Concluding Remarks

■ Using the WIOD CGE model: ■ Tariff on embodied carbon is effective, ■ but shifts burden to non-coalition regions. ■ Differentiated carbon tariff has has not much value added (but

depends on assumed policy scenario)

■ Effects of climate policy measures on vertical specialization

need more attention.

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Motivation WIOD CGE Model Simulation Results Conclusion

Thank you for your attention! schenker @ zew.de +49 621 1235229 www.zew.de

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