Barbara K' Buchner

1
TAXBEN Final Conference CEPS - 27 November 2006,
BrusselsPolicy Discussion of Work package
5Abating global warming, emissions trade and
the need for European coordination

• Barbara K. Buchner
• Fondazione Eni Enrico Mattei, Italy

2
Overview

• Climate Policies and Economic Growth by Alho, K.
  (ETLA)
• Post-2012 Climate Policies A Simulation Study
  with WorldScan by Boeters, S. (CPB), Verweij, G.
  (CPB)
• Taxes and Tradable Permits in the EU to curb CO2
  Emissions Efficient and Transitional Climate
  Policies A Combined Analysis Using PACE and
  WorldScan by Böhringer, C. (ZEW), Boeters, S.
  (CPB), Moslener, U. (ZEW)
• Post-Kyoto Climate Policies From G8 to L20 by
  Böhringer, C. (ZEW), Moslener, U. (ZEW)
• Efficiency Losses from Overlapping Economic
  Instruments in European Carbon Emissions
  Regulation by Böhringer, C. (ZEW), Koschel, H.
  (ZEW), Moslener, U. (ZEW)
• The EU-ETS and existing energy taxes by
  Veenendaal, P.J.J. (CPB)

3
Climate Policies and Economic Growth

• Main question
• What are economic effects of climate policies?
• Important policy question (US position, Stern)
• Main insights for policy
• Technology matters
• Price of tradable permit significant role
• Optimal subsidy to RD activity in clean energy
  technology quite high
• But consider that reallocation of resources from
  energy-intensive sectors to those that use other
  inputs is difficult

• CO2 different
• Indeed, leakage not that bad

4
Post-2012 climate policy - Background

• Broad participation on climate change control is
  hard to achieve because of
• Public good free-riding incentives
• Large economic and environmental structural
  asymmetries among world regions
• Absence of supra-national authority

• Difficulty of negotiations
• Low environmental effectiveness of Kyoto Protocol
• Look for incentives

5
Post-2012 Climate Policies

• Main question
• How to extend climate policies?
• Important policy question currently negotiations
  
• Main insights for policy
• 3 separate markets expensive
• Link would enable efficiency gains, but there are
  winners losers and indirect effects
• CDM can set incentives (FSU?)
• Stand-alone policy of US might benefit EU

• essential to identify incentives for each country
  to find common ground for negotiations

6
Efficient and Transitional Climate Policies

• Main question
• What is trade-off between allocative / overall
  efficiency and distributional considerations /
  political feasibility?
• Important policy question wait see or act?
  Turning point? Is there a point of no return?
• Main insights for policy
• Political feasible transition scenarios
  initially lower than efficient abatement levels,
  with more pronounced temperature increase?
  requires sharper emissions decline later on
• Stringent targets infeasible / expensive
• Obstacle for future climate negotiations

• go beyond political feasibility

7
From G8 to L20 a smaller negotiation group

• Main question
• Is negotiation in a smaller group easier/more
  efficient?
• Important policy question are there more
  participation incentives for such an approach?
• Main insights for policy
• In line with theoretic considerations and
  political reality
• But Trade-off limited ? global coverage? may
  not be easily agreed upon (costs)
• Key role of equity

• Difficult but essential to cover all countries
  policy proposal regional/subglobal climate blocs
• involve all, binding / non-binding elements

8
EU Carbon Policy Overlapping Economic
Instruments

• Main question
• Potential efficiency losses from co-existence of
  emission taxes and emissions trading in EU?
• Important policy question are there distortions?
  implications for EU ETS design / climate policy?
• Main insights for policy
• Price-based mechanism within quantity-based
  scheme unlikely to alter environ. effectiveness
  increases overall EU compliance costs
• Carbon tax for non-trading sectors
• Careful handling of carbon/energy taxes in
  trading sectors

• Portfolio of climate policy instruments yes
• But careful design

9
EU ETS and existing energy taxes

• Main question
• Interactions between EU ETS EU energy taxation
• Main insights for policy
• Taxes differ strongly between countries and
  sectors mainly political reasons for energy
  taxes, almost no environmental considerations
• Existing energy taxes distortive ? power of
  rearranging existing taxes
• EU ETS given energy taxes, substantial extension
  unlikely to increase efficiency
• EU ETS auctioning can increase economic welfare

• CO2 emission reductions often as by-product of
  other (mainly energy-related) concerns
• Portfolio approach crucial

10
Summary The Facts

• Speed of climate change alarming, unexpected
• Increasing evidence for potentially large impacts
  of climate change
• Increasing evidence for high costs or even
  infeasibility of reaching stringent targets
• Need to involve as many countries as possible

• CO2 different (indeed, leakage not that bad)
• CO2 emission reductions often as by-product of
  other (mainly energy-related) concerns
• Existing energy taxes distortive

• Use insights of papers to set incentives for
  participation

11
Summary Implications for post-2012

• Difficult but essential to cover all countries
  regional / subglobal climate blocs
• Involve all, binding / non-binding elements
• Essential to identify incentives for
  participation and compliance
• Better coordination / institutions
• Portfolio approach to climate policyBut careful
  design
• Linking of ET markets important but complicated
• first step link CDM to ET markets

• Global participation, but differentiated
  commitments
• Improvement of energy system
• Go beyond political feasibility!

12
Summary Implications for EU climate policy

• Essential to identify incentives and impacts for
  each country / sector
• Difficult but essential to cover all sectors
• Substantial extension of EU ETS not recommended
  due to existing energy taxes
• Better coordination
• Portfolio approach to EU climate policyBut
  careful design
• Linking of ET markets important but complicated
  (current evidence from EU ETS)
• first step strengthen link to CDM
• One more recommendation for auctioning

• Go beyond political feasibility!

13
(No Transcript)