ECONOMIC analyses to support the - the PMR...Source: Centro Mario Molina, 2013. • Estimated...

ECONOMIC analyses to support the

Technical Meeting on Carbon Tax

Cologne, Germany

May, 29.

Environmental fiscal reform

Juan Carlos Belausteguigoitia

Centro Mario Molina

Carbon tax in

Mexico Design and effects

The basic idea behind a carbon tax is that “the polluter pays", a

principle adopted by OECD recommendations to guide the

environmental policies of its member countries.

Introducción 3

La generación de escenarios de crecimiento urbano permite

comprender las implicaciones de la expansión de las ciudades.

Carbon Tax

Objective: To reflect and internalize the social

cost of CO2 (much greater than the private cost).

Incentives innovation and adoption of

energy saving technologies.

Seeks to increase consumption efficiency

and social welfare.

Advantages Encourages gradual

changes in the behavior of households and firms.

In the aggregate it results on a net welfare gain.

Social Cost of CO2

(Academic Studies) Net present value of the

future harm of an emission of a ton of CO2 in the present.

Introducción 3



Stern (2006) Uses low discount

rates and high damage climate

scenarios.

Nordhaus (2011) Higher

discount rates and lower

extreme weather scenarios.

Tol (2011) Intermediate value.

The less optimistic the scenario is, and

the lower the discount rate, the higher

the value of the damage per ton.

Authors $/tCO2

Nordhaus (2011) $12

Hope (quoted in Tol, 2011) $21

Tol (2011) $48

Stern (2006) $85

Source: EPA, 2013 & Departamento de Energía y Cambio Climático de Gran Bretaña, 2009.

Introducción 3



The UK and the US plan to

incorporate a “price of carbon” (CO2) in their

regulatory and investment

decisions.

Discount Rates

2.5% 3.0% 5.0% 3.0% (95

percentile)

NPV in 2015 $12 $40 $62 $117

Scenarios

Low Medium High

NPV in 2015 $45 $90 $136

Social Cost of CO2 (Government white-papers)

USA (US$ per ton)

United Kingdom (US$ per ton)

International

experience in

carbon taxes

and markets

30 countries

18 subnationals

Introducción 3



Countries\Instruments Carbon Tax Emissions

Trading

Netherlands ✔ ✔

Finland ✔ ✔

Denmark ✔ ✔

Norway ✔ ✔

Sweden ✔ ✔

Italy In discussion

2014 ✔

Ireland ✔ ✔

Slovenia ✔ ✔

United Kingdom ✔ ✔

Japan ✔ ✔

Australia ✔

Canada (Quebec, British

Columbia) ✔ ✔

CO2 Tax :

Initiative of the Executive

Introducción 3



The initiative proposed a tax of

MX$ 70.68 pesos per ton of CO2.

($5.7 US dollars) 0

1

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$

Weighted price of a ton of CO2 (weighted index by market volume)

Average $5.7

Volume of the largestCO2 markets 2012

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California 2013 California 2016

NZ ETS RGGI

Spot EEX $

Price of a ton of CO2 in international markets

Introducción 3



Executive Proposal

Fuel Tax (MXN) Implicit price per ton of

CO2 (MXN) % change in price

Natural Gas 11.94 cents per m3 70.68 4.1%

Propane 10.50 cents per liter 70.68

Butane 12.86 cents per liter 70.68

Gasoline 16.21 cents per liter 70.68 1.4%

Jet fuel and other

kerosene 18.71 cents per liter 70.68 1.6%

LP Gas 11.42 cents per liter 70.68 1.7%

Diesel 19.17 cents per liter 70.68 1.6%

Fuel Oil 20.74 cents per liter 70.68 2.6%

Petroleum Coke 18.99 cents per kg 70.68 16.1%

Coal Coke 19.30 cents per kg 70.68 17.0%

Mineral Coal 17.83 cents per kg 70.68

Others 70.68

Proposed tax of MX$ 70.68 pesos per ton of CO2 (US$ 5.7 dollars)

Source: Centro Mario Molina, 2013.

• Estimated reduction: 5.8 million tons of CO2 in 2014.

• Income of $26.7 billion pesos (2 billion US dollars) (1.8% of tax revenues of Federal Government in 2012)

CO2 Tax : Initiative of the Executive

Introducción 3



The Political Economy of Carbon Taxes,

or “living in Stavins’ World”.

“In principle, both carbon taxes and cap-and-trade can achieve cost-effective reductions, and – depending upon design — the distributional consequences of the two approaches can be the same.”

“But the key difference is that political pressures on a carbon tax system will most likely lead to exemptions of sectors and firms, which reduces environmental effectiveness and drives up costs, as some low-cost emission reduction opportunities are left off the table.” But political pressures on a cap-and-trade system lead to different allocations of the free allowances, which affect distribution, but not environmental effectiveness, and not cost-effectiveness.”

Source: Stavins, Robert . [2012]. Cap-and-Trade, Carbon Taxes, and My Neighbor’s Lovely Lawn.

Stavins, 2012.

Approved version by Congress introduces changes

that will generate inefficiencies in price signals

Approved carbon tax, 2013 Tax Reform

Fuel Tax (MXN) Implicit price per ton of

CO2 (MXN) % Change in price

Natural Gas 0.00 cents per m3 0.00 0.0%

Propane 5.91 cents per liter 39.78

Butane 7.66 cents per liter 42.10

Gasoline 10.38 cents per liter 45.26 0.9%

Jet fuel and other kerosene 0.00* cents per liter 46.84 1.1%

LP Gas 6.59 cents per liter 40.68 1.0%

Diesel 12.59 cents per liter 46.42 1.1%

Fuel Oil 13.45 cents per liter 45.84 1.7%

Petroleum Coke 1.56 cents per kg 5.80 1.3%

Coal Coke 3.66 cents per kg 13.4

Mineral Coal 2.75 cents per kg 10.92 2.6%

Others 39.80

• CMM emphasized the importance of a uniform price per ton of CO2 for all fuels.

• However, the discussions in Congress led to a different implicit price per fuel.

Introducción 3



Impact in the right

direction, but inefficiencies

due to different implicit prices.

* The carbon tax does not apply to air fuel because Mexico is a signatory of the Convention on International Civil Aviation (also

known as the Chicago Convention) since 1946, which exempts commercial aviation fuel from taxation.

EXPECTED EFFECTS

Of Mexico’s

carbon tax

(Million tons of CO2)

Expected reduction of emissions for 2014

Reduction of CO2 emissions in

2014 (Mt/CO2)

% of Mexico’s total

emissions

Proposal 5.83 1.18%

Approved 1.61 0.33%

Source: Centro Mario Molina.

Introducción 3


comprender las implicaciones de la expansión de las ciudades.0.0

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Initial proposal Approved

(Million pesos per year)

Tax revenue 2014

(million pesos)

% of total tax revenue of

Federal Government (2012)

Proposal $ 26,742 1.80%

Approved $ 11,495 0.80% Source: Centro Mario Molina

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Propuesta al ejecutivo

Reforma AprobadaIntroducción 3


comprender las implicaciones de la expansión de las ciudades.$0

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Approved

Expected tax revenue for 2014

Correcting a perverse policy:

phasing out subsidies in

gasoline

Introducción 3



Phasing out gasoline and diesel subsidies.

3,942

3,229

1,000

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2,500

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3,500

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Jan

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Monthly consumption of regular gasoline (low octane)

(Ene 97- Abr 13)

Real price of regular gasoline (low octane)

(Ene 97- Abr 13)

8.7

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Introducción 3



Carbon tax and gasoline subsidies phase out:

achieving 1/6 of Mexico’s goal

Carbon tax

Estimated emissions reduction (CO2e/year)

1.6 million tons

Gasoline and diesel subsidy phase out

5.4 million tons

7 million tons

These two policies represent 1/6 of the yearly emissions reductions necessary to achieve the Mexican voluntary target. In 2010, Mexico pledged in the Cancun Agreements, to reduce 30% of its emissions by 2020.

In perspective

Centro Mario Molina para Estudios Estratégicos

sobre Energía y Medio Ambiente, A.C.

+52 (55) 91 7716 70

Ricardo Ochoa Sosa [email protected]

Tania Guerrero

[email protected]

Este proyecto fue realizado gracias al apoyo del

Consejo Nacional de Ciencia y Tecnología



+52 (55) 91 7716 70


Tania Guerrero

[email protected]





+52 (55) 91 7716 70


Tania Guerrero

[email protected]



PhD. Juan Carlos Belausteguigoitia Rius Executive Director [email protected] www.centromariomolina.org

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ECONOMIC analyses to support the - the PMR...Source: Centro Mario Molina, 2013. • Estimated...

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