www.seri.at

Global effects of a European environmental

tax reform

WIOD Conference on Industry-Level Analyses of Globalization and its Consequences26 May 2010

Christine Polzin (SERI)Dr Christian Lutz (GWS)Dr Stefan Giljum (SERI)

2

Content

1. Background: The PETRE project

2. The GINFORS Model

3. Results

4. Policy recommendations

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Content

1. Background: The PETRE project

2. The GINFORS Model

3. Results

4. Policy recommendations

4

What are the global impacts of a European environmental tax reform?

Resource PProductivity, EEnvironmental TTax RReform and sustainable growth in EEurope

• Environmental impacts:•Material extraction•Energy-related CO2 emissions

•Economic impacts:•economic growth•International trade & sectoral competitiveness

http://www.petre.org.uk/

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Content

1. Background: The PETRE project

2. The GINFORS Model

3. Results

4. Policy recommendations

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GGlobal ININterindustry FORFORecasting SSystem (GINFORS)

GINFORS:• Economy-energy-environment simulation model • Global multi-country approach• Multi-sector approach• Links modules for bilateral trade, macroeconomic

behaviour, industrial output from IO tables and energy use and prices

• Includes a global dataset on material extraction (physical data)

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Data sources and coverage

data sources global coverage

UN COMTRADE 2 regions (OPEC, ROW)OECD IO (41 sectors)OECD STAN, SNA DTNational sources (CN, TW)

macro OECD/IMF 52 countriesenergy/CO2 IEA 52 countries

material SERI 52 countriespopulation UN 52 countries

model type

input-output and sector

22 countries (more than 80% of world GDP)

tradeOECD (BTD, 25 sectors, Services)

50 countries (> 95% of world GDP, trade, energy consumption)

coun

try m

odel

s

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Country coverage

country models OPEC ex. Indonesia ROW

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Baseline and policy scenarios

Baseline = Business as usual scenario• Socio-economic and economic-environmental relations of

the past will continue in the future

ETR scenarios • ETR tax in all EU non-ETS sectors = ETS price• Aviation included in EU ETS• 100% auctioning of power generation ETS permits• 50% auctioning of all other ETS permits in 2013,

100% auctioning by 2020• Material taxes (5% ad valorem in 2010, 15% by

2020)

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Policy scenarios

S1H • High energy prices• ETR with 100% revenue recycling: all revenues are used to

reduce the employers’ social security contributions (income tax, etc)

• 2020 EU GHG emissions target (20%) met

S3H • High energy prices• ETR with 100% revenue recycling • International cooperation • 2020 EU GHG target (30%) • Emerging economies introduce a CO2 tax which is recycled

via income tax reductions

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Content

1. Background: The PETRE project

2. The GINFORS Model

3. Results

4. Policy recommendations

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GDP continues to grow in all 4 regions in the baseline scenario

Average annual growth rates

1995-2000

2000-2005

2005-2010

2010-2015

2015-2020

In % (based on USD PPP, 2004)

EU-27 3.1 1.9 2.2 2.5 2.2

OECD (non-EU) 3.8 2.6 2.0 3.0 2.9Emerging Economies 6.2 8.0 8.7 8.3 6.8

RoW 3.8 4.9 5.1 3.7 2.9

World 4.2 4.8 4.4 4.9 4.4

GDP development in the baseline scenario (average annual growth rates)

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Global economic weight will shift away from the old industrialised countries

Shares in world GDP

2000 2005 2010 2015 2020

In % (based on USD PPP, 2004)

EU-27 25.4 22.4 20.4 18.4 16.8

OECD (non-EU) 41.3 37.5 33.8 31.2 29.3Emerging Economies 27.9 31.4 37.0 42.0 46.0

RoW 5.9 9.2 9.5 9.0 8.5

Shares in world GDP, baseline scenario

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Global economic growth is only marginally affected by an ETR

Total value of GDP,

baseline (in billion USD 2000, PPP)

Absolute deviation of HS1 from

baseline in 2020

Percentage deviation of HS1 from

baseline in 2020

Absolute deviation of HS3 from

baseline in 2020

Percentage deviation of HS3 from

baseline in 2020

EU-27 15,931 -92 -0.6 -297 -1.9

OECD (non-EU) 27,840 28 0.1 -78 -0.3

Emerging Economies 43,699 53 0.1 -688 -1.6

RoW 8,033 6 0.1 -266 -3.3

World total 94,926 -3 0.0 -1,313 -1.4

GDP impacts in different world regions. 3 scenarios (in bn USD 2000, PPP)

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Exports continue to grow in the baseline scenario

Average annual growth rates

2000-2005

2005-2010

2010-2015

2015-2020

In % (based on USD, 2000)

EU-27 3.7 3.1 2.6 2.9

OECD (non-EU) 7.7 5.1 3.1 2.5Emerging Economies 5.1 9.3 5.4 6.1

RoW 8.7 8.3 5.3 5.8

Export developments in different world regions, baseline scenario

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Export impacts are stronger with global cooperation

Total value of exports,

baseline, 2020

(PPP bn USD)

Absolute deviation of HS1 from

baseline in 2020

Percentage deviation of HS1 from

baseline in 2020

Absolute deviation of HS3 from

baseline in 2020

Percentage deviation of HS3 from

baseline in 2020

EU-27 7972.0 -60.1 -0.8% -264.2 -3.3%

OECD (non-EU) 5505.1 14.1 0.3% -29.5 -0.5%

Emerging Economies 11036.0 19.8 0.2% -159.2 -1.4%

RoW 4913.9 7.4 0.2% -73.2 -1.5%

Export impacts in different world regions, three scenarios

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-30

-25

-20

-15

-10

-5

0

5

10

% d

evia

tion

from

bas

elin

eResource-intensive sectors loose out

EU Exports: impacts of scenario SH3

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Continuous trend of increasing global resource extraction

0

20

40

60

80

100

120

2000 2005 2010 2015 2020 2025 2030

billi

on to

nnes

Construction minerals Industrial minerals Non-ferrous metals Iron ores Natural Gas Crude Oil Coal Forestry products Agricultural products and fish

Global used material extraction of different material categories, baseline

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Material extraction continues to grow

50

55

60

65

70

75

80

85

2000 2005 2010 2015 2020

billi

on to

nnes

Baseline

S1H

S3H

Global used material extraction, 3 scenarios

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A European ETR and global cooperation can decrease material extraction

Total extraction, baseline,

2020 (in billion tonnes)

Absolute deviation of S1H in 2020

(in billion tonnes)

Percentage deviation of S1H from

baseline in 2020

Absolute deviation of S3H in 2020

(in billion tonnes)

Percentage deviation of S3H from

baseline in 2020

EU-25 6.8 -0.10 -1.47 % -0.24 -3.6 %

OECD (non-EU) 18.7 0.02 0.10 % -1.03 -5.5 %

Emerging Economies 31.5 0.01 0.03 % -2.23 -7.1 %

RoW 24.2 -0.02 -0.08 % -0.79 -3.3 %

Global 81.2 -0.09 -0.11 % -4.30 -5.3 %

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CO2 emissions remain constant in the EU but increase elsewhere

0

5

10

15

20

25

30

35

40

45

2000 2005 2010 2015 2020 2025 2030

billi

on to

nnes

RoW

Emerging Economies

OECD (non-EU)

EU-27

Energy-related CO2 emissions in 4 regions, baseline (bn tonnes)

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22

24

26

28

30

32

34

36

2000 2005 2010 2015 2020

billi

on to

nnes

Baseline

S1H

S3H

Global CO2 emissions can hardly be reduced with EU measures alone

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CO2 emissions can be substantially reduced with global cooperation

Total CO2

emissions in baseline, 2020 (in Mt)

Total change in

HS1 in 2020(in Mt)

Relative change in HS1, % in

2020

Total change in

HS3 in 2020(in Mt)

Relative change in HS3, % in

2020

EU-25 3776.3 -318.8 -8.4 % -722.4 -19.1 %

OECD (non-EU) 10244.6 10.4 0.1 % -1829.1 -17.9 %

Emerging Economies 14835.5 2.3 0.02 % -2741.9 -18.5 %

RoW 5854.9 0.4 0.01 % -141.4 -2.4 %

Global 34526.7 -272.8 -0.8 % -5398.6 -15.6 %

Impacts of an ETR on energy-related CO2 emissions in HS1 and HS3

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Content

1. Background: The PETRE project

2. The GINFORS Model

3. Results

4. Policy recommendations

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Combating climate change with global cooperation and global climate treaties

• Large emerging economies will increase their share in CO2

emissions

• Unilateral action by the EU is insignificant in terms of global

environmental sustainability

• Participation of all OECD and emerging countries

• Avoid carbon leakage

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CO2 emission targets are not sufficient to address climate change

• Targets to reduce EU CO2 emissions (by 20-30%) are not sufficient.

• Measures are needed to increase resource productivity and to limit

resource consumption.

• Focus on CO2 is too narrow (e.g. biofuels, nuclear energy)

• Address our unsustainable use of resources (root cause of climate

change)

• Concerted action

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Shared responsibility between producers and consumers

• Increasing importance of embodied emissions in trade

• Multi-regional IO models show that our CO2 emissions would

be higher (developing countries produce on our behalf)

• Distribute costs to reduce GHG emissions between

producers and consumers

• Per capita allocations or global carbon tax

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Address the conflict between economic and development goals

• In important EU policy strategies (“Global Europe”, “Raw

Materials Initiative”) the goals of access to and supply of raw

materials and natural resources prevail over the objective of

their sustainable and equitable use

• Increase technical and financial assistance for climate change

mitigation and adaptation

• Placing access to resource efficient technologies outside the

purview if IPR restrictions into the public domain / international

public buyouts of patents on such technologies

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Thank you!

www.seri.atwww.gws-os.dewww.materialflows.net

christine.polzin@seri.at

lutz@gws-os.de

stefan.giljum@seri.at

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Scenarios

Baseline with low energy prices (LEP) LB: • International energy prices: PRIMES 2007 (60 $2005/boe in 2020)• GDP and CO2 adjusted to PRIMES 2007/WEO 2007• ETS price: 18 Euro2008/t CO2 in 2020

Baseline HB:• Baseline as above but exogenous real oil price is assumed to rise after

2008 consistent with a $113/boe in nominal terms in 2010 and then to rise as in the PRIMES baseline (LEP above).

• Gas and coal prices follow the oil price.• Energy prices consistent with IEA/WEO 2008 baseline

Scenario 1: LS1• 2020 EU GHG emissions target (20%) met• Low energy prices (baseline LEP)• ETS price = ETR tax rate• ETS: 100% auctioning in 2020• Material tax (15% ad valorem tax in 2020)• 100% revenue recycling: employer’s social security contributions (ETS

material tax and carbon tax on corp. rev)/income tax (carbon tax on hh)• No further policy measures (RES, efficiency package etc.)

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Scenarios (part II)

Scenario 2: HS1 • 2020 EU GHG 20% target met• High energy prices• CO2 price: 68 Euro 2008/t

Scenario 3: HS2• As Scenario 2• 10% recycling in low carbon technologies

(RES and building insulation)• CO2 price: 61 Euro 2008/t

Scenario 4: HS3• As Scenario 2• International cooperation• 2020 EU GHG emissions target (30%!) met• CO2 price: 184 Euro2008/t (OECD)• CO2 price: 46 Euro2008/t (emerging economies)