June 27-29GTAP ConferencePurdue University
Welfare Cost for Europe of Non Participation in the Market for Tradable Permits and Comparative Efficiency of Corrective Policies towards Energy Intensive Sectors
Alain Bernard and Marc Vielle
June 27-29GTAP ConferencePurdue University
Article 3 of the Kyoto Protocol
“Any such trading shall be supplemental to domestic actions for the purpose of meeting quantified emission limitation and reduction
commitments under that Article”
June 27-29GTAP ConferencePurdue University
French National Program of Climate Change Policy, MIES 2000
Tradable permits...“may only be supplemental to domestic efforts, which must represent the
bulk in fulfilling the commitments”
June 27-29GTAP ConferencePurdue University
French Committee of Sustainable Growth
“the trade of permits, in a country that would constrain its economy and population to a severe emissions abatement in order to get
revenue from the sale of permits, could aggravate social inequalities”
June 27-29GTAP ConferencePurdue University
Issues
Welfare cost of non participation by EU to the market of tradable permits
Implications for Energy Intensive Sectors (EIS)
Assessment of various policies aimed at compensating distortions in EIS between Europe and other Annex B countries
June 27-29GTAP ConferencePurdue University
Plan
• Overview of the model GEMINI-E3/GemWTraP• The Benchmark Scenario: Annex B Tradable Permits• Non Participation of EU and No Corrective Measures• Corrective measures for EIS• Summary of Results
June 27-29GTAP ConferencePurdue University
GEMINI-E3 : A Worldwide Dynamic General Equilibrium Model
7 Regions
USA Energy Exporting Countries
Japan Former Soviet Union
France Other countries of European Union
Rest of the World
8 Sectors/Commodities
Coal
Crude Oil
Natural Gas
Refined Oil Products
Electricity
Agriculture
Energy Intensive Sectors
Other Goods and Services
Period of simulation
yearly, from 2000 to 2040
June 27-29GTAP ConferencePurdue University
GEMINI-E3/GemWTraP
Main Characteristics
• Total Price Flexibility • Detailed Representation of Indirect
Taxation• Measure of Welfare Cost of Policies and
Components• and of course: Armington Assumption
June 27-29GTAP ConferencePurdue University
Measure of Welfare Cost and Components
S = R - CVITotal Welfare Gain Variation of Income Compensative Variation of
Income
GTT = EXP PEXP - IMP PIMP
PIMP IMP - PEXP EXP
= -DWL + GTT Deadweight Loss of Taxation Gains from Terms of Trade
June 27-29GTAP ConferencePurdue University
Definition of the Scenarios:Benchmark versus Non participation of EU
• Tradable Permits between Annex B Countries
• Tradable Permits between Annex B Countries other than European Union Domestic Tax in European Union countries
After 2010 : Kyoto Forever
June 27-29GTAP ConferencePurdue University
Price of permits with and without European Union
0
20
40
60
80
100
120
140
160
180
200
2010 2040
with EU
without EU
In $ 1990 per ton of carbon
June 27-29GTAP ConferencePurdue University
EU Tax versus Price of International Permits
0
100
200
300
400
500
600
700
800
900
1000
2010 2040
French CarbonTax
EU11 CarbonTax
Internationalpermits
Price of carbon in $ 1990 per ton
June 27-29GTAP ConferencePurdue University
Welfare Cost for Annex B and non Annex countries
(in % of Households’ Final Consumption)
-2%
0%
2%
4%
6%
8%
France EU11 USA Japan FSU EEC ROW
With EU
Without EU
in 2010
June 27-29GTAP ConferencePurdue University
Welfare Cost for Annex B and non Annex countries
(in % of Households’ Final Consumption)
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
France EU11 USA Japan FSU EEC ROW
With EU
Without EU
in 2010(Zoom)
June 27-29GTAP ConferencePurdue University
Welfare Cost for Annex B and non Annex countries
(in % of Households’ Final Consumption)
-2%
0%
2%
4%
6%
8%
10%
12%
14%
France EU11 USA J apan FSU EEC ROW
With EUWithout EU
in 2040
June 27-29GTAP ConferencePurdue University
Welfare Cost for Annex B and non Annex countries
(in % of Households’ Final Consumption)
-2%
-1%
0%
1%
France EU11 USA J apan FSU EEC ROW
With EUWithout EU
in 2040(Zoom)
June 27-29GTAP ConferencePurdue University
Components of Welfare Cost for European Countries
Difference between Participation and Non Participation
(in Billions of F90 or ECU90)
-120
-100
-80
-60
-40
-20
0
20
40
France 2010 France 2040 EU11 2010 EU11 2040
Net Gains from Terms of Trade Net Sales of permitsDeadweight Loss of Taxation Welfare Cost
June 27-29GTAP ConferencePurdue University
Change in Production for EIS
(in % w.r.t. BaU, in 2040)
Participation of EU Non participation of EU
France -0.4% -8.9%
EU11 -1.5% -10.9%
USA -2.5% -0.1%
Japan -2.2% -0.4%
FSU -31.5% -15.5%
EEC 4.2% 6.5%
ROW 2.2% 3.6%
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EU Corrective Policies for EIS
Exoneration of Carbon Tax
Mitigation of Carbon Tax (EU tax = price of permits)
Access to Permits for EIS
Carbon Tax Rebating
Implementation of Duties for non EU Imports
June 27-29GTAP ConferencePurdue University
0
500
1000
1500
2000
Comparisons of Carbon Tax in France
Year 2040
(1990 $ per ton of Carbon)
June 27-29GTAP ConferencePurdue University
0
500
1000
1500
2000
Comparisons of Carbon Tax in EU11
Year 2040
(1990 $ per ton of Carbon)
June 27-29GTAP ConferencePurdue University
Tradeoff between Welfare and EIS Production
(France)
0.00%
0.50%
1.00%
1.50%
-1.00% 1.00% 3.00% 5.00% 7.00% 9.00%
Carbon Tax Exoneration
No Corrective Policy
Carbon Tax Rebating
Carbon Tax Mitigation
Access to Permits for EIS
FullPartici-pation
Import Duties
Welfare Loss
(in % of HFC)
Change in EIS production
June 27-29GTAP ConferencePurdue University
Tradeoff between Welfare and EIS Production
(EU11)
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
0.00% 2.00% 4.00% 6.00% 8.00% 10.00%
12.00%
Carbon Tax Exoneration
No Corrective Policy
Tax Rebating
Tax Mitigation
EIS Permits Access
Full Participation
Import duties
Welfare Loss
(in % of HFC)
Change in EIS production
June 27-29GTAP ConferencePurdue University
Main Teachings
Non participation to the market of permits is costly for EU
Concerning other countries:
Net Sellers are losers
Net Buyers are winners
Concerning leakage in European EIS:
- all considered policies have approximately the same efficiency
- some increase the welfare cost, some on the contrary alleviate the burden
June 27-29GTAP ConferencePurdue University
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%
France
EU11
USA
Japan
FSU
EEC
ROW
EIS
GDP
Appendix
Share of Energy in the Cost of Production: EIS versus GDP
(1990)
June 27-29GTAP ConferencePurdue University
0% 5% 10% 15% 20%
Chemistry
Iron and SteelProducts
Other Ores
Synthetic Fiber
Construction andceramic products
Glass
Paper board
Share of Energy in the Cost of Production for some EIS
(France, 1990)