Milan S C A S N Y Charles University Environment Center Prague, Czech Republic Policy instruments to...

Milan S C A S N YCharles University Environment Center

Prague, Czech Republic

Policy instruments to reduce air pollutionJoint CAFE /NEBEI Conference Brussels, 11-12 November 2004

ECONOMIC INSTRUMENTS TO REDUCE AIR POLLUTION

...issues with regard to new MS’s...

CAFE/NEBEI Economic Instruments

Content

Economic Instruments: overview

External costs and policy

Distributional effects of environmental regulation

Conclusions: policy obstacles and opportunities

I. Economic Instruments: overviewActions and conditions immediate action(s) in the beginning of 90’s (SOx reduction by 60%-

80% by power plants in the CR during 1993-1998 that involved cc. 3 bln. €)

„fast“ policy being implemented a huge amount of EC regulation during 1998-2002

economic „instability“ due to transition, social aspects strongly highlighted

issues raised:– quality of regulation– economic-efficiency, ecol.-effectivenss– capacity and institutional building– large investment and envi expenditures (2.5% of HDP, 8% of total capital

formation in CR in mid-90’s)

Issues behind: (S-)EIA used, CBA very seldom applied economic issues present tabu in certain fields, e.g. nature protection

(optimum for protection, benefit valuation...)

I. Economic Instruments: envi-levies

long experience with levies: more than 40 tax/charge bases within 11 CEEC (REC and EEA databases)

– effectiveness is questionable (rates far away from Pigouvian rates)– excise taxes on motor fuels widely implemented

REVENUES FROM ENVI RELATED LEVIES

(V4-2000)

% GDP % tax revenues

USD per cap.

exch. r. PPP

Czech Republic 2.9 7.9 157 431

Hungary 2.9 7.4 132 348

Poland 2.0 5.8 80 190

Slovakia 2.2 6.2 80 246

OECD Min.-Max. interval 1 – 5 4 – 13 50 - 1.600

Arithmetic average OECD 2.6 6.9 534

Weighted average OECD 1.95 5.3 408


I. Economic Instruments: energy taxation energy taxation:

– rare energy taxation tax on coal only in 2 (CY. SLO) tax on electricity only in 2 (HUN. POL) CO2 tax in 1 (SLO)

– implementation of 2003/96/EC Directive: transitional period provided– excise taxes widely implemented

Excise tax on diesel used as propelant

050

100150200250300350400450500

€ p

er

10

00

l


Price Matters...Price of gasoline

0,0

0,2

0,4

0,6

0,8

1,0

1,2

CR POL HUN SVK AT B D GR

€ pe

r l

VAT

excise tax

pre-tax

Price of diesel

0,0

0,2

0,4

0,6

0,8

1,0


€ pe

r lVAT

excise tax

pre-tax


Real Price Matters...Price of petrol (adjusted by PPP)

0,0

0,5

1,0

1,5

2,0

2,5

3,0


€ pe

r l

VAT

excise tax

pre-tax

Price of diesel (adjusted by PPP)

0,0

0,5

1,0

1,5

2,0

2,5


€ pe

r lVAT

excise tax

pre-tax


I. Economic Instruments: emission trading

non-GHG emission trading in 1 (SK) regulation of GHG emissions by 2003/87/EC:

– ETS designed within NAP’s– BAU emissions lay at lower levels than „virtual“ Kyoto commitment

would be for „IPPC-bundle“– CAP’s are not too „strict“ (sometimes even higher than BAU

emissions predicted)– less strict policy – provision of „compensation bonus“ for large

investments financed in 90’s (due to inefficient policy based on command-and-control measures, e.g. in the Czech Rep.)

renewables: feed-in tarrifs or min quota withtransferable certificates

bio-fuels: (tradbale) quotas for min. share in fuel (packaging waste: quotas with transferable certificates ?)


I. Economic Instruments: subsidies & support measures

as first in politician/officials mind

ecological funds (para-fiscal)

driving force by EC policy

– PHARE/ISPA/SAPARD

– EIB (most money allocated to road transport)

– SF/CF (new opportunity for the change in 2007-2012)


II. ECONOMIC REASONS FOR REGULATION

External costs implementation of the ExternE method in new MS’s

within the EC funded projects ExternE-Pol, SusTools, MethodEx, NEEDS

externalities differ:– technology specifics

diesel/petrol, coal/gas/renewables, ...

– site specifics

rural/urban, high/low population density

– time specifics

bad/good condition for dispersion

– subjective valuation of the damage/harm

national values, transfer benefit

CAFE/NEBEI Economic Instruments-1

0

1

2

3

4

5

6

7

8

SAKO TERMIZO Malesice

MorbidityMortalityCropsBuilding material

€€/t

on

/ton

19991999

19891989

19981998


Termizo Liberec

Malešice

SAKO Brno


Spatial distribution of external damage Spatial distribution of external damage done by SAKO Brnodone by SAKO Brno

0%

20%

40%

60%

80%

100%

Buildingmat.

Nit.morbidity

Nit.mortality

Sul.morbidity

Sul.mortality

Total

Cze Ger Pol Aut Sko Row


Externalities in energy sector

0

2

4

6

8

10

12

14

16

18

20

€c p

er k

Wh

• end-of-pipe technologies • change of fuel (domestic dirty coal --- imported cleaner coal)• change of techniques (current --- BAT) • change of technology (coal --- gas)


EXTERNALITIES - Transport: passanger cars

External costs per vkm, Czech Rep.

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

5

URBAN-Gasoline

EUR2

URBAN-Diesel EUR2

URBAN -Gasoline

EUR3

URBAN -Diesel EUR3

RURAL-Gasoline

EUR2

RURAL-Diesel EUR2

RURAL -Gasoline

EUR3

RURAL -Diesel EUR3

€c p

er v

km

GHG

health


EXTERNALITIES - Transport: freight- road transport increased by 60%-70% in V4 during 1997-2001

- CR: significant increase of transport, accompanied by decrease of railway & increase of road tr.- CR: km used by railways -5%, and highways +20%- CR: number of lorries increased by 70% in CR (1995-2003; now 3.4 lorries per 100 Czechs)

- growth of freight flow due to removal of duties and other requirements on the borders- effect of electronic mileage payment system in A&G on transit countries such HUN, CZ, SVK, SLO

External costs per vehicle-km in €c, Czech Rep.

pasanger

c arLDV

HDV

0

10

20

30

40

50

60

70

80

90

100

URBAN-Gasoline

EUR2

URBAN-Diese l EUR2

RURAL-LDVDiese l EUR2

URBAN-LDVDiese l EUR2

RURAL-HDVDiese l EUR2

URBAN-HDVDiese l EUR2

€c

pe

r v

km


Transport: instrument-mixTaxes on acquisitions Taxes on ownership Taxes on motoring

VAT circulation tax fuel tax

registration/sales tax vehicle insurance premium tolls / km charge

Externalities and taxes per liter of motor fuel,

Czech Republic (2004)

gasoline diesel

0

0,2

0,4

0,6

0,8

1

RURAL-EUR2

URBAN-EUR2

RURAL-EUR3

URBAN-EUR3

Excisetax

Excisetax +VAT

RURAL-EUR3

URBAN-EUR3

RURAL-HDV

URBAN-HDV

Excisetax

Excisetax +VAT

€ p

er

lite

r o

f m

oto

r fu

el


III. Distributional effects...

...focused on Czech households...– Who consume the fuels and energies ?– Would regulation involve regressive effect ?


Household Expenditures on energies by living minimum index, 2003

MOTOR FUEL

COAL

ELECTRICITY

GAS

HEAT

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

<1.6 1.6 - 1.9 1.9 - 2.2 2.2 - 2.5 2.5 - 3.0 3.0 - 4.0 >4.0

% o

f tot

al n

et e

xpen

ditu

res


Household expenditures on energies, per deciles

MOTOR FUELS

COAL

ELECTRICITY

GAS

HEAT

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

1dec 2dec 3dec 4dec 5dec 6dec 7dec 8dec 9dec 10dec


Household expenditures on energies, 2003

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

employees farmers pensioners average

% o

f tot

al n

et e

xpen

ditu

res

HEAT

GAS

ELE

COAL

FUELS


Household expenditures on motor fuels and public transport

Public transport

Motor fuels

0%

1%

2%

3%

4%

5%P

ub

lic tr

ansp

ort

, %

of n

et e

xpen

ditu

res

0%

1%

2%

3%

4%

5%

Mo

tor

fuel

s,

% o

f net

exp

end

iture

s


Distributional effects...cnt’d

...focused on the Czech households II– Who did pay for the regulation ?– Who would reduce the pollution ?


Tax Progressivity for Energy in the Czech Republicby Suits (1977) Index

- tax changes on motor fuels: 1994, 1995, 1998, 1999- tax changes on energies: 1997 (due to VAT)


Household Energy Demand Assessment in the Czech Republic

pensioners farmers employers average

electricity

- price elasticity -0.10 -0.32 -0.20 -0.21

- income elasticity 0.69 0.70 0.65 0.68

motor fuels


- income elasticity 0.64 0.63 0.62 0.63

gas


- income elasticity 0.17 0.52 0.19 0.30(based on Brůha et Ščasný 2004)


Effectiveness vs. Fiscal Revenues & Efficiency– the energy/base with lower price elasticity (electricity) is taxed

the higher public revenues, and household energy expenditures are, the smaller impact on energy consumption, emissions and DWL is

– it holds on the contrary for the product with higher elasticity (e.g. fuels)

Regressivity: Impacts calculated for each household group on (based on Bruha et Scasny 2004 in AERE-2004):

– impacts on energy consumption and additional energy expenditures– costs of living index (Laspeyers & Paasche) -- > potential compensation aiming to sustain welfare unchanged– dead-weight loss (potential compensation minus addit. revenues)

Which kind of ETR design?– compensations based on additional energy expenditures ?– compensations based on calculated needed compensation ?– which households should be subject of compensations ?– trade-off between mitigating social effect and enhancing labour ?

ENVIRONMENTAL TAX REFORM:Concerns on fiscal and distributional effects


Additional energy

expenditures

Potential compensation

s

Reduced externalities

0

200

400

600

800

1 000

1 200

1 400

1d 2d 3d 4d 5d 6d 7d 8d 9d 10d

Ad

d.e

xp

end

iture

s a

nd

po

ten

tia

l co

mp

ensa

tio

ns

0

20

40

60

80

100

120

140

Re

duc

ed e

xte

rna

litie

s

Additional energy

expenditures

Additional energy

expenditures

Potential compensations

Potential compensations



0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

EMPL FARM PENS Average

Add

.exp

endi

ture

s an

d po

tent

ial c

ompe

nsat

ions

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

Red

uced

ext

erna

litie

s

Household Energy Demand Assessment cont’d.

• Who would reduce the pollution ?...test for the ETR-2004 (2008) variant; in CZK

additional expendituresreduced externalities ...per average household potential compensation needed to sustain household welfare unchanged


Distributional effects...cnt’d

...focused on the households III– Who suffers from pollution (what’s distribution of

pollution)?

– hypothesis: low-income household groups are harmed relatively more

no evidence from CEEC my intuition: more equal distribution of welfare&wealth in CEEC

in the beginning of 90’s than in EC-15

– evidence: low-income household groups value damage relatively lower (due to their WTP to avoid negative effects)


Conclusions: Policy ?

Environmental Tax Reform („greening the budgets) Removal/reform of Envi Harmful Subsidies

– including increase of efficiency of all support measures

Emission trading

tax on labor49%

profit tax + VAT26%

other taxes7%

non-tax revenues

9%

enviro-related VAT2%

eco-levies7%


1st bandreal-2000

2nd bandreal-2000

1st bandnominal

2nd band nominal

50

100

150

200th

ou

sa

nd

s C

ZK

petrol

diesel

profit tax

labour tax (highest rate)

insurance

6

8

10

12

14

16

18

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

CZ

K (

for

mo

tor

fue

ls)

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

tax

& i

nsu

ran

ce

ra

tes

in

%


Conclusions: Policy Obstacles & Opportunities

...obstacles... housing market regulation car dependency growing freight road transport social problems (involved by regressive regulation) persistency of subsidies public finance, incl. social security system, reforms

...opportunities... need for technology restoration attention for energy efficiency (cost effect) scarce public resources (regarding subsidy reform) unemployment & high labor costs public finance, incl. social security system, reforms

Contacts:Milan ŠčasnýCharles University Environment CenterU Krize 8, 158 00 Prague Czech Republictel.: (+420) 2510 80 [email protected]

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