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Competitiveness protection
Better tax imports than compensate
inland producers
Martijn Overgaag
03/04/2014
© ECOFYS | |
Better tax imports than compensate inland producers
> Many different national/regional GHG-combat mechanisms will coexist
> Regions need to recognize competitive disadvantage compared to peers
– Compensation schemes are mostly “free allowance” based
– Effects are dynamic;
– Compensation schemes become increasingly complex.
> Border tax adjustments are more efficient and effective than giving free
allowances
– Adjusting border taxes provides incentives for importing supply chains too
– Adjusting taxes is also good for treasury of the country;
– Taxes may replace ‘general’ import and export levies that harm developing
countries.
> Getting the numbers right is equally complicated as benchmark developments;
> Introduce tax, but also exemptions for importers that have a demonstrated comparable
effort
03/04/2014 Martijn Overgaag
© ECOFYS | |
Current greenhouse gas emission trends projected to
warming > 2 degrees
03/04/2014 Martijn Overgaag
http://climateactiontracker.org/assets/publications/publications/CAT_Trend_Report.pdf
© ECOFYS | |
World Bank report 2013 “Mapping carbon pricing initiatives”
03/04/2014 Martijn Overgaag
Ecofys is now preparing the 2014 edition of the World Bank Carbon Pricing Report which will be
launched at Carbon Expo in May, 2014. Full report:
http://www.ecofys.com/files/files/world-bank-ecofys-2013-mapping-carbon-pricing-initiatives_summary.pdf
Coming soon
© ECOFYS | |
Cap & trade system
• Guarantee environmental outcome and let the market
determine the price;
• Have economy make investments where reductions are
cheapest.
Price (€ / t CO2) = f (real emissions, emission rights available)
Time
Total
emission
rights in
ETS
C A P
C A P €
Emission right
Cap and trade system
What is a Cap-and-trade system?
Martijn Overgaag 03/04/2014
© ECOFYS | |
Introducing carbon costs to manufacturing supply chains is
an effective means to fight global carbon emissions…
…if costs are implemented only in a specific region, competitiveness may be distorted: Carbon Leakage
Martijn Overgaag 03/04/2014
© ECOFYS | |
Determination of carbon leakage risk: trade and cost
Martijn Overgaag 03/04/2014
© ECOFYS | |
> In Australia assistance factor is multiplied with average intensity,
instead of benchmark level.
03/04/2014 Martijn Overgaag
Carbon leakage classification and assistance factors
in 3 ETS regions
EU ETS California Australia
CL
High High
Medium Medium
No CL Low No CL
100%
80%30%
100%50%
100%30%
100% 94.5%
66%
0%
© ECOFYS | |
Eligibility criteria for CL compensation in EU
03/04/2014 Martijn Overgaag
Trade ratio
In
du
ced
carb
on
co
st
rati
o
10% 20% 30%
10%
20%
30%
Maximum
compensation EU
© ECOFYS | |
Eligibility criteria for CL compensation in EU versus
Australia
03/04/2014 Martijn Overgaag
Trade ratio
In
du
ced
carb
on
co
st
rati
o
10% 20% 30%
10%
20%
30%
Maximum
compensation EU
Maximum
Compensation AUS
Medium
Compensation AUS
© ECOFYS | |
Eligibility criteria for CL compensation in EU versus
California
03/04/2014 Martijn Overgaag
Trade ratio
In
du
ced
carb
on
co
st
rati
o
10% 20% 30%
10%
20%
30%
Maximum
compensation EU
Maximum
Compensation CAL
Medium
Compensation CAL
© ECOFYS | |
What to do when more and more countries have an ETS, and
incompatible competitiveness protections?
U.S Cement importing
03/04/2014 Martijn Overgaag
Based on publicly available data from United State Geological Survey, above figure shows volumes
imported Portland cement to U.S by different countries from 2001 - 2011. The figure shows that imports
declined after 2006, specifically from China. Since 2009, Canada is by far the largest import source.
0 5,000 10,000 15,000 20,000 25,000 30,000 35,000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Canada
Korea
China
Colombia
Mexico
Taiwan
Greece
Sweden
Spain
Denmark
Other countries
ktonne product
Ye
ar
Fact
Source: Ecofys for State of California: work in progress
© ECOFYS | |
Challenge: comparing efforts of third countries
Comparison of third country commitments to reducing GHG emissions
– Japan, South Korea, Australia have ambitious policy in place, possibly comparable
to EU;
– China, India: emerging mandatory policy packages, impact for industry uncertain
yet;
– Brazil, Indonesia, South Africa show less strict policies: voluntary actions;
– Russia, Canada, USA: laggards, no coherent, ambitious and national policy
framework in place or to come.
> Comparison of GHG efficiencies between EU and third countries
Limited availability on carbon efficiencies complicates cross-country:
Public data sources are not a good basis for cross-country GHG efficiency
comparisons due to serious flaws in combing data from different sources;
Exceptions consist of the aluminum and cement industry where company
data is collected in a methodologically sound and transparent way.
03/04/2014 Martijn Overgaag
Source: Oeko Institut e.V./Ecofys: Support to the Commission for the determination of the list of sectors and subsectors deemed to be exposed to a significant risk of carbon leakage for the years 2015 - 2019 (EU Emission Trading System), January 2013.
© ECOFYS | |
Options to introduce border carbon adjustments
> Include importers in the Cap-and-Trade Program. Importers are subject to full Cap-and-
Trade requirements as covered entities. The drawback is that the current allowance
budget under the Cap-and-Trade Program does not account for emissions associated
with potential production outside of California due to leakage.
> ‘Linked cost’ for importers with no market mechanism. Importers are subject to a cost
calculated based on (Emissions obligation x Cap-and-Trade allowance price(s)), but
there is no provision for market flexibility.
> Create an independent allowance pool for importers with equivalent program
stringency. Two possibilities are related to this option:
> a. Replicate a ‘mini’ Cap-and-Trade allowance pool with full market mechanism.
> b. Create a simplified purchase/sales system with equivalent program stringency.
Source: Ecofys for California Air Resources Board, work in progress.
03/04/2014 Martijn Overgaag
Source: Ecofys for State of California: work in progress
© ECOFYS | |
Border tax adjustments is better than free allowances,
both on effectiveness and efficiency
Environmental effectiveness
• carbon leakage rate
• inside emissions saving
• global emissions saving
• certainty
Distributional impact
• consumer impact
• firm impact
• fiscal cost
Efficiency
• welfare cost/ton global GHG,
• welfare cost/ton domestic GHG
Feasibility
• domestic
• international
• institutional
Administrative cost
03/04/2014 Martijn Overgaag
But: international feasibility is a key challenge. However: no reason to back away from taking the challenge
Source: Ecofys/Vivid Economics for DECC: work in progress
© ECOFYS | |
How to push the supply chain into low carbon:
95 g/km Ecodesign
03/04/2014 Martijn Overgaag
Source, THE SOCIETY OF MOTOR MANUFACTURERS AND TRADERS LIMITED, 2014
http://www.ecofys.com/en/publication/economic-benefits-of-the-eu-ecodesign-directive/
© ECOFYS | |
Better tax imports than compensate inland producers
> Many different national/regional GHG-combat mechanisms will coexist
> Regions need to recognize competitive disadvantage compared to peers
– Compensation schemes are mostly “free allowance” based
– Effects are dynamic;
– Compensation schemes become increasingly complex.
> Adjusting border taxes provides incentives for importing supply chains too
– Adjusting taxes is also good for treasury of the country;
– Taxes may replace ‘general’ import and export levies that harm developing
countries.
> Getting the numbers right is equally complicated as benchmark developments;
> Introduce tax, but also exemptions for importers that have a demonstrated comparable
effort
03/04/2014 Martijn Overgaag
© ECOFYS | | 03/04/2014 Martijn Overgaag
Please contact us for more information
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3526 KL Utrecht
The Netherlands
I: www.ecofys.com
Martijn Overgaag
T: +31 (0)30 662-3232