Some economic aspects of climate change
Instruments and statistics
by
Torstein Bye
Director , Economics, Energy and Environment
Statistics Norway
tab@ssb.no
• Introduction
• Instruments – basic characteristics
• Instrument classification
• Instruments and statistics
• A Norwegian example
• Summary and conclusion
London Group Canberra
27-30 April 2009
1
Introduction
•
The Stern report (Stern, 2008)
– Climate change and economic consequences Cost of mitigation, cost of
adaptation, Cost efficient approach to mitigate
•
•
•
Eurostat/OECD definition of environmental related taxes
Combating climate change is about instruments – classification issues.
A range of instruments,
– Economic instruments, technology instruments, regulatory instruments etc.
– All instruments create shadow prices in the market –i.e. economic instruments
– To understand effects are important when deciding upon what statistics we need
•
We produce a comprehensive number of consistent statistical tables
– that allows us to perform consistent analyses both of driving forces,
– and the impact of the instruments on emissions
– Where does the statistics come from
•
We exemplify some interesting aspects
– by combining actual figures for Norway from a set of such consistent tables.
•
Concludes
London Group Canberra
27-30 April 2009
2
Environmental taxes - classification
• (Eurostat 2001/OECD):
– A tax whose tax base is a physical unit (or a proxy of it) of something
that has a proven, specific negative impact on the environment
 It was decided to include all taxes on energy and transport, to include resource taxes but to
exclude resource taxes on the petroleum sector, and to exclude VAT.
 It seems random and not principal?
• Pigou (1920) – The economics of welfare:
– A tax that corrects for negative externalities related to economic
activity (cf. the environment)
• Bye and Bruvoll (2008) – Multiple instruments to change
energy behaviour – the emperors new clothes?
 Resource rent (Ricardo, Hotelling), monopoly rent
 Capture Infrastructure cost – Ramsey (1927) ?
 Income generation – Ramsey (1927)
 Externalities (Pigou (1920)
• Problem OECD: Value added tax, labour tax?
• Example: less than 20 percent of OECD/Eurostat env.taxes
for Norway are really environmental taxes – cf. Bruvoll, Næss and
Smith (2009) - forthcoming
London Group Canberra
27-30 April 2009
3
Taxes and subsidies
Negative externality
Discriminatory taxes
Positive externality
Discrimination
D1
D1
b
D0
b
D0
S
Da
Discriminatory subsidies
p1b
t
p0
p1a
S0g
S1g
Sb
S0
S1
p1g
rent
x1b
x0b
x0a x1a
x1 x0
s
p0
p1b
D
Bye and Bruvoll (2008):Multiple
instruments to change energy behaviour
– the emperor new clothes
x0g
x1g
x1b x0b
x0 x1
London Group Canberra
27-30 April 2009
4
Green and White certificates
Taxes are bad – subsidies are bad – I do not want to pay
GC: Free certificate on supply – purchaser obligation
WC: Obligation to save – trade for supplier
Green certificates -supply
White certificates -demand
h(p)
g(p)
h(p)+g(p)
h(p)+g(p+pc)
Db
p1
Da
S2
b
S0
g(p+pc)
p2
p1a
pc
p0
p1
p0
f(p)
f(p+apc)
x0g
x1g
x0 x1
x1b x0b
x1b x2b x0b x2a x1a
x0a x1
London Group Canberra
x0
27-30 April 2009
5
Brown certificate – or carbon trade
Limit the
amount:
Db
Da
p0b
p*
p*
A shadow
price occur
Initial
allocation
Distribution of
cost and
benefits
p0a
A0a
A0b
A1a
A1b
Taxes an
subsidies
London Group Canberra
27-30 April 2009
6
Supplementary instruments
• Regulation - shadow price – “tax” – “subsidy”
• Standards - shadow price – “tax” and “subsidy”
• R&D – subsidy – and a “tax”
• Market concentration – regulation?
– Good for the environment - Tax and subsidy
Fundamentally:
• All instruments are fundamentally a combination of:
– a “tax” and a “subsidy”
• When producing statistics:
– we should remember that and treat them equally
London Group Canberra
27-30 April 2009
7
Instruments and statistics - fundamentals
Sector
Sector
Sector
Agriculture
Gasoline
Intermediat
Fuel oil
Coke
Coal
Wood
Waste
Intermediates
oil
Coke
CoalWood Wood
es
Gasoline Gasoline
Fuel oil Fuel
Coke
Coal
Waste WasteIntermediates
Agriculture Agriculture
Primary industries
Fisheries
Primary
industries
Primary industries
Fisheries
Fisheries
Top down
versus bottom up approach
Forestry
The fundamental bottom up approach
Pulp and
Pulp and paper Pulp
Input
– output or activity tables
and paper
paper
Machinery
A detailed
sector
list coefficient of compound x on the cell activity
Manufacturing Manufacturing
Machinery
Emission
Machinery
Manufacturing
A detailed commodity
list
Metals
Metals
Metals from table 1
Amount of emission carrier
Other
Other
Other
Amount
of (fixed
emissions
of compound x – the product of
Physical
orTechnology
economic
values
prices)
information
Construction
ConstructionConstruction
table 1inand
Energy account
national account
CO2 –and
straightforward
– carbon
CO22 out
Electricity etc Electricity etc
Electricity etc Bridging table to energy balances
CH4 – burning technology
Banking
Banking
BringsBanking
discipline
to theSF
statistical
work
HFC, CFC,
6 – Process technology
Insurance
Insurance
Analyses
of driving forces
Insurance
Private Services Private Services
Private
Services
Transport
Transport
Analysis
of the effects of instruments
Transport
Other
The role of UN
Other
Forestry
Forestry
Other
Public services Public services
Public services
Residential
Residential
Residential
London Group Canberra
27-30 April 2009
8
Instruments and statistics – “technologies”
Sector
Gasoline
P
Agriculture
Manufacturing
Services
Households
T
S
Fuel
P
T
Coke
S
P
T
Coal
S
P
T
Wood
S
P
T
Intermedia
tes
Waste
S
P
T
S
P
T
S
Table 3 - split into processes (P) - Transport (T) and Stationary (S) end uses –
Why;
- discriminatory or
- different environmental impact
- tax rates per unit
- subsidies vary
- allowances vary?
- certificates vary?
- regulation vary?
Tax rates for each emission activity
Same principle for all instruments
OECD data base of environmental taxes, exemptions, reimbursement, caps etc
http://www.oecd.org/env/policies/database - cf the criticism above
London Group Canberra
27-30 April 2009
9
Instruments and statistics
•
Taxes – Table 4x-x (taxes and discrimination – accounts)
– Tax rate on volumes of proven environmental impact  Ex. emissions of carbon dioxide.
– Data collection and definition – are tax rates split ?:
 Simple in theory – difficult in practice ? cf. Eurostat (2001)
– Ramsey, environmental, energy, resource, transportation infrastructure,
–
Bye and Bruvoll (2008b)
 Harmonize with the total collected taxes measured in public accounts
– (i.e. a tax account matrix).
•
– Steinbach et al. (2008a)
 Environmental taxes in the context of the SEEA
Subsidies – table 5x-x (complexity versus registers)
– Measure keeps prices below their market value for consumers and above market value for producers
– In practice - direct transfers or tax credits (foregone income)
– In UNEP (2004) direct transfers, public R&D, preferential tax treatments, price controls and loanslower than market interest rate
– Our paper has a much broader definition of subsidies - only possible to calculate indirectly –cf.
market responses – relevant data for analysis – make analysis possible
– Data collection
 Subsidies are normally launched to investment projects in terms of a specific amount or a lump sum
 to producing facilities based on a production basis (for instance a feed in tariff – i.e. a unit subsidy)
 for facilities that want to save the use of input (energy efficiency projects) on the demand side, either lump sum
or per unit.
 Lump sum subsidies are normally linked to some kind of volume measures, i.e. they may be transformed to a
unit measure.
 In practice this measure is complex and some data transformation processes are needed to make the measures
comparable in units.
 Subsidies are normally directed towards detailed projects, i.e. these data are on matrix form, cfr. table 3.
 The bright side - government will normally establish some kind of a register
– Steinbach et al. (2008b) discusses Environmental subsidies in the context of the SEEA manual.
London Group Canberra
27-30 April 2009
10
•
•
Instruments and statistics
Carbon market – table 6x-x – cf create 50 percent reduction in 2050?
– Shadow price of regulation – equals the ”tax”
Two sets of additional statistical tables
– Initial assignment of free allowances in volumes
 (implies also a value transfer – volume times the market price)
– Economic and volume capturing the trading of emission permits
– Aggregates over the columns in table 3:
•
 normally directed towards sectors and not activities – but who knows what happens
Data source
– The assigned amount of allowances may be collected from public registers
 grandfathered, i.e. based on historic emissions,
 other free emissions (for instance for new facilities).
 Surrendered emission,
 The “verified” emissions follow from table 3.
– Trade of permits – both volumes and values (some may not be tradable)
 Allowances – public registers
 CDM trade –public registers
 JI trade –public registers
 Verified emissions – table 3
 Net trade on exchange – accounting principle
– The permit market in the context of the SEEA manual and the SNA - Olsen
(2008).
London Group Canberra
27-30 April 2009
11
Instruments and statistics
•
Green certificates – table 7x-x – cf at least 20 percent of EU market in 2020
– Approval - delivery of the number of certificates by technology choice and firms
in public registers
– The value of the certificate on the pool /exchange
– Energy balance (residential) or the energy account (territorial) framework
 depends upon national or international framework?
•
White certificate - table 8x-x – cf. at least 20 percent of EU market in 2020
– Public register of how much each firm/sector is supposed to save
– The principal agent assumption eases the data collection.
 Each agent (for instance a distribution company for electricity) has to verify
the savings and the cost for each principal (consumer)
•
Regulation table – table9x-x
– Regulations are normally set up by public firms on a firm specific regime.
– Public sector should follow up on their own regulation
 both the regulated and the verified outcome is registered – consistency check to table 3
– The information needed then should be based on these registers.
London Group Canberra
27-30 April 2009
12
A Norwegian example (table 3,4,6) – CO2 “taxes”
NOK/tonne CO2
350,00
Extraction of oil and gas
Households
300,00
250,00
Land transport
ex/cabs, railw ay
and bus transport
Domestic sea transport
200,00
oct 2008: 25 €/tonne CO2
Average CO2-tax in Norw ay: 184 NOK/tonne CO2
dec 2008: 15 €/tonne CO2
Plastic, rubber production
Iron and steel
Cement, lime and gypsum
Fishing
50,00
Aluminum
Gas terminals
100,00
Production of refined oil products
150,00
0,00
0
5
10
15
20
25
30
35
40
45
mill. tonnes CO2
London Group Canberra
27-30 April 2009
13
A Norwegian example–who pays how much?
NOK/tonne CO2
Landfills
850
800
750
700
650
600
550
500
450
400
EU/ETS oct 2008: 25 €/tonne CO2
Extraction of oil and gas
350
Households
300
250
~0.3 bill. €
Sea- and land transport
200
~0.4 bill.€
150
100
~0.8 bill. €
”Processing emissions
50
0
0
5
10
15
20
25
30
35
40
45
mill. tonnes CO2
London Group Canberra
27-30 April 2009
14
Summary and conclusion
• Mitigation is about instruments
• What is an environmental tax?
• Complex instruments introduced
• All instruments are combinations of “taxes and subsidies”
• Statistics for just one instrument is “a lie”?
• Statistics for all instruments on the same principle
• Input/output matrix
• Tax rates
• Registers
• Accounting
• Analyses made possible
– Driving forces
– Effect of instruments – partially/bilaterally/trilaterally/multilaterally
London Group Canberra
27-30 April 2009
15
Some questions raised:
•
•
•
•
•
•
•
•
The paper advocates that all instruments in climate policy reduce to a combination of taxes and
subsidies. Does the London Group agree?
The paper advocates that it is important that statistics gather information on instruments in
climate policy in a detailed manner, which makes it possible to study the market and technology
effects of instruments. Does the LG agree?
To follow the impact of climate policy it is important that as many instruments as possible are
included in the statistics. For some instruments it seem easy, for others it is more complex.
However, research on how to include complex instruments should be emphasised?
The paper advocates that the statistical detailed setup for instruments should follow the
statistical setup for emissions (i.e. the national and energy account setup). Does the LG agree?
– For statistical purposes this eases the data gathering as values may be based on tax rates
and emission accounts.
– Consistency may be checked by aggregation of these tax rates emission accounts
calculations and total public tax accounts.
Emission permits should be included in the statistical system on the same basis?
– This includes tradable permits in the markets, which may be calculated indirectly, see
below
– This includes JI – which may be found in national registers
– This includes CDM – which may be found in national registers
– This includes free allowances –which may be found in national registers
We should include new instruments as green and white certificates?
Statistics for regulations should be gathered – how to include them should be studied further?
Important lessons are to be learned from the OECD-database
– However the DEFINITIONS of environmental taxes ARE disputed?
London Group Canberra
27-30 April 2009
16
Norwegian environmental taxes as share of ”environmentally related taxes”
reported to Eurostat
CO2 taxes
Other environmental taxes
Other
Electricity
consumption
tax
(taxes on other climate gas emissions, NOx,
SO2 and waste)
Diesel tax,
envir. elements
excepted
Petrol tax, environm.
elements
excepted
Motor vehicle
registration tax
Annual
motor
vehicle
tax
Total reported taxes: 8.2 bill Euro
Environmental taxes: 1.4 bill Euro (<20%)
Sources:
Bruvoll, Næss and Smith (2009) (forthcoming)
Ministry of Finance (2007): An evaluation of Norwegian excise taxes, NOU 2007:8
London Group Canberra
27-30 April 2009
17