Kapitel 4

R&D into clean technologies is an important complement to carbon pricing (in large economies).

• invest in cleaner energy and better energy use

• distribution of electric cars

• multiplier is very high, because many firms follow

ESR = effort sharing regulation

• The Effort Sharing Regulation (ESR) is one of Europe’s main tools to combat climate change and reduce greenhouse gas (GHG) emissions in the sectors outside the Emissions Trading System (ETS) cost- effectively. These sectors, including transport, buildings, agriculture, non-ETS industry and waste, account for almost 60% of total domestic EU emissions.

• EU Member States have binding annual greenhouse gas emission targets for 2021-2030 for those sectors of the economy that fall outside the scope of the EU Emissions Trading System (EU ETS). These sectors, including transport, buildings, agriculture, non-ETS industry and waste.

• GDP / capita is the indicator of how strict the goals per country are.

  This ensures fairness because higher income Member States take on more ambitious targets than lower income Member States.

• to gain more energy efficient residential buildings

• replace old, energy inefficient electricity, heating, warm water systems with newer ones

• incentives for people to get something new what is also good for the environment

The concept of revenue neutral is a system wherein all revenues that accrue to the government from a pricing system are returned to the households and businesses through some mechanism, like tax cuts.

Border adjustments, also known as border tax adjustments or border

carbon adjustments, are taxes on imports and rebates on exports that account for variance in carbon pricing policies across different countries.

• reduce emissions

  carbon penalizing policies

• create incentives to reduce emissions

  green supporting initatives

• Carbon Tax is a tool used to translate greenhouse gas emissions into a financial cost.

• Emission Trading Scheme (ETS) works on a ‘cap and trade’ principle.

• Public expenditures to limit climate changes

• Regulatory policies: permissions, prohibition, standard setting and enforcement

• Cutting environmental harmful policies e.g. tax abatement for commuters, use of company cars, offer fuel voucher

1. A carbon tax

2. Emission trading systems (ETS)

3. “Feebates

4. Regulations

1. A carbon tax—a tax on the supply of fossil fuels in proportion to their carbon content—leads people and firms to use all such avenues to reduce emissions, conserve energy, or switch to greener power sources because it is passed forward into higher prices for carbon-based fuels and electricity.

2. Emission trading systems (ETS) in which firms must hold an allowance for each ton of their emissions, and the government sets a cap on total allowances or emissions; market trading of allowances establishes the emissions price.

3. Feebates are a policy mechanism that applies fees to products or activities with above-average emission rates and provides rebates for those with below-average emission rates. The fees and rebates are determined based on the difference between the emission rate of the product or activity and the industry average. Feebates are designed to be revenue-neutral, ensuring self-financing of the system.

4. Regulations—for example, standards for the emission rates of vehicles and power generators, or for the energy efficiency of electricity-using products, or minimum requirements for the use of renewables in power generation

carbon tax instruemnt is cheaper tp get down CO2 emissions compared to feebates or regulations

it is cheaper because the emission reduction can be achieved by switching to cleaner technologies for a wider range of products and activities, as well as consuming less energy.

To deal with over-production, Pigou recommends a tax placed on the offending producer. If the government can accurately gauge the social cost, the tax could equalize the marginal private cost and the marginal social cost. In more specific terms, the producer would have to pay for the non-pecuniary externality that it created. This would effectively reduce the quantity of the product produced, moving the economy back to a healthy equilibrium.

The diagram illustrates the working of a Pigouvian tax. A tax shifts the marginal private cost curve up by the amount of the externality. If the tax is placed on the quantity of emissions from the factory, the producers have an incentive to reduce output to the socially optimum level. If the tax is placed on the percentage of emissions per unit of production, the factory has the incentive to change to cleaner processes or technology.

ETS a quantity based instrument and the carbon tax which is a price based instrument

1. reduce direct emissions

2. improve energy efficiency

   
   

• incentive for energy conservation and shifitng to cleaner energy

• government revenue (can be re-used)

• domestic environmental gains

• political difficulty arises

• First, it will provide signals to consumers about which goods and services are carbon-intensive and should therefore be used more sparingly;

• Second, it will provide signals to producers about which inputs are carbon-intensive (such as coal and oil) and which are low-carbon (such as natural gas or wind power), thereby inducing firms to move to low- carbon technologies;

• Third, it will give market incentives for inventors, innovators, and investment bankers to invent, fund, develop, and commercialize new low-carbon products and processes;

• Fourth, pricing promotes the full range of behavioural responses for reducing energy use and shifting to low carbon fuels and consequently reduce emissions;

• Fifth, pricing mobilizes a valuable source of revenue which can be used for achieving various economic and distributional objectives.

The principal aim of environmental taxes is to cut pollution cost-effectively.

The principal aim of environmental taxes is to cut pollution cost-effectively. In the process, these taxes generate tax revenue. Just like in any other market, and irrespective of the environmental benefits resulting from the tax, the introduction of a tax imposes a burden on the consumers and the producers in that market: part of the benefits that accrued to them before the tax are transformed into tax revenue, and there is a net loss of consumer and producer benefits (abstracting from reduced pollution).

If tax revenue has the same or a higher economic value than consumer and producer benefits, then environmental taxes increase net benefits. However, if the economic value of tax revenue is lower than that of consumer and producer benefits, then the benefits from reduced pollution may be outweighed by the costs of raising tax revenue.

1. increase prices

2. using taxes

3. tradable permits

regressive: everyone pay the same amount (1k Steuer auf 20k Einkommen = 5%, bei 100k Einkommen nur 1%)

proportional taxes: everyone pays the same (Mehrwertsteuer)

encourage people to spend more and work more beacuase there is no tax penalty for earning more

progressive: steigt mit Einkommen (Freibetrag bis Spitzensteuersatz)

regressive & proportional affect low income more than high income, mehr % vom Einkommen geht für Mehrwertsteuer drauf

progressive affect high income earners more than anyone else

Carbon tax burden is measured as the percentage of a household's income that is spent on the tax.

Two common measures of income:

• annual income, measured as disposable income in any given year and

• lifetime income, where total expenditure in a year is used as a proxy.

Annual disposable income seem to be the obvious but may overestimate the regressiveness of a tax:

• households in the lowest income deciles have low earnings today but high potential future earnings (e.g. young households), or

• are retired with low pensions but large savings, and thus not poor in the common meaning of the word.

• consumers wish to smooth out consumption over their life cycle and thus focus mainly on lifetime income when making consumption decisions.

Alternative is the lifetime income: problem how to measure

• many researchers use total expenditure for each household as a proxy; based on the argument that if consumption is always a fraction of lifetime income, total expenditure provides a useful proxy.

Best: use both

Gini coefficient measures the inequelity of levels of income.

Gini=0 (perfect equality)

Gini=1 (maximal inequality)

pro:

• fall in emissions

• uptick in green energy

con:

• energy prices increase

• poorer households more effected than richer housholds

  
  

Emissions Trading Scheme (ETS) is a mechanism that sets emission reduction obligations for market participants and distributes emission quotas corresponding to this ceiling. Participants can buy their quotas to compensate for excessive emissions or sell their quotas to promote additional reduction efforts.

The EU ETS:

• EU’s policy to combat climate change;

• It is the largest carbon market in the world

• Established in 2005, it covers more than 11,000 heavy energy-using installations and airlines,accounting for around 40 percent of the EU’s greenhouse gas emissions.

• The market operates under the cap and trade principle.

• The cap is set on the total amount of certain greenhouse gases that can be emitted.

• The cap is reduced over time so that total emissions fall.

• Within the cap, emission allowances are then auctioned off or allocated for free among the companies in the system, and can subsequently be traded.

• Each year, the companies must surrender enough allowances to cover all their emissions.

• If a company reduces its emissions, it can keep the spare allowances to cover its future needs or sell them to another company that is short of allowances.

The Effort Sharing Regulation (ESR) is one of Europe’s main tools to combat climate change and reduce greenhouse gas (GHG) emissions in the sectors outside the Emissions Trading System (ETS) cost- effectively. These sectors, including transport, buildings, agriculture, non-ETS industry and waste, account for almost 60% of total domestic EU emissions.

Under the Effort Sharing Regulation, the EU-wide GHG reduction effort is shared between all the EU Member States. This is done mostly on the basis of a country’s wealth as measured by GDP per capita.

Under the current legislation, EU Member States have binding annual greenhouse gas emission targets for 2021-2030 for those sectors of the economy that fall outside the scope of the EU Emissions Trading System (EU ETS). These sectors, including transport, buildings, agriculture, non-ETS industry and waste, account for almost 60% of total domestic EU emissions.

The Regulation continues to recognise the different capacities of Member States to take action by differentiating targets according to gross domestic product (GDP) per capita across Member States.

This ensures fairness because higher income Member States take on more ambitious targets than lower income Member States.

However, an approach for higher income Member States based solely on relative GDP per capita would mean that some would have relatively high costs for reaching their targets.

1. transfers

2. subsidies

3. public investment

4. R&D (research & development)

• Energy-efficient in residential buildings (transfers, subsides, tax incentives) in almost all EU countries

• Reduce energy intensity of residential buildings: replace old, energy inefficient electricity, heating and warm water systems with newer energy efficient ones.

• Car scrappage schemes

• Higher penetration of renewable energy sources in electricity generation: Such schemes subsidise the price of electricity generated from renewables

• not so much is invested, but the multiplier compared to other climate change measures is high

• more R&D needed to get more technologies to reduce CO2

Adaptation policies: complement mitigation (Abschwächung)

Adaptation: deliberate adjustments in ecological, social, and economic systems to moderate adverse impacts of

climate change and harness any beneficial opportunities.

Hard Adaptation: dyke construction, changing crop varieties, adapting infrastructure

Soft Adaptation: early warning systems, building codes, insurance

These measures might reduce the urgency of mitigation—but only moderately (for example, there are

limits to how far one can protect against extreme climate outcomes).

Preventive actions cost effective and common, than reactive actions, but are hindered by uncertainties and funding constraints.

• The poor are exposed to: (i) higher energy share and (ii) a larger fall in their income

• My results suggest that redistributing some of the auction revenues to the most affected groups in society may be an effective way to reduce the economic costs of carbon pricing and strengthen the public support of the policy

• poorer households lower their consumption significantly while richer households are less affected. Not only are the poor more exposed because of their higher energy share, they also experience a larger fall in their income.

  
  

1. First, only because the benefits accrue mostly to other countries and may be concerned that higher energy costs would harm its firms’ international competitiveness.

2. Second, current mitigation pledges are not expressed using a common measure for all countries, thus hindering international comparisons.

3. Third, most future low-cost mitigation opportunities are in large, rapidly growing emerging market economies, especially those that rely heavily on coal. However, advanced economies may have greater responsibilities for mitigation. Indeed, on a per capita basis, projected baseline emissions in India in 2030 are only one-seventh of those for the United States.

The government must assess both ‘vertical’ and ‘horizontal’ effects:

• the differing effect of the tax on high- and low-income households, and

• the differing effects on households with similar incomes but different consumption patterns.

Without mitigation measures, a carbon tax on energy fuels is regressive, hitting low- income households disproportionately. But in the transport sector a carbon tax is largely progressive as the share of income spent on transport increases with income.

An inferior good is a good whose demand decreases when consumer income rises (or demand increases when consumer income decreases), unlike normal goods, for which the opposite is observed. Normal goods are those goods for which the demand rises as consumer income rises.

Examples for environmentally harmful tax credits include favourable company car taxation. Several countries apply a favourable tax for private use of company cars or offer fuel vouchers, thus distorting the price signals for the costs of car ownership and fuel consumption, impacting on the ownership and model choice as well as driving habits. Another example are tax abatements for commuters if they are granted only on the distance between work and home irrespective of the means of transport used, such as in Germany and Austria. Such tax credits might not only disincentivise the use of public transport, but also impact on location choices, supporting urban sprawl. Moreover, tax credits are applied to international and domestic aviation (tax exempt for kerosene, VAT exemption for international flights), even though intra-EU flights are covered by the ETS system.

Furthermore, several countries provide tax reductions or tax rebates for energy intense industries, partly to compensate for higher costs related to the ETS system. For example, in Germany the manufacturing, agricultural and forest sectors benefit from electricity and energy tax reductions of up to 60% of standard tax rates for electricity and heating fuels (natural gas and liquefied gas) and up to 73% of the standard rate for heating oil. Austria provides energy tax rebates for manufacturing amounting to 0.1% of GDP.

Carbon taxes and ETS lead to shift to greener energy and to cut back on the use of energy-consuming products or capital. Fossil-fuel energy producers pass the cost of a carbon tax (or ETS) to end users through higher prices.

Feebates and regulations, however, do not discourage activities that use energy. Fossil-fuel energy producers pass the cost of a carbon tax (or of tradable emission permits) to end users through higher prices for, say, electricity or gasoline. In contrast, a feebate consisting of an extra fee on vehicles with lower-than-average fuel efficiency and a rebate on more efficient vehicles would lead consumers to purchase more efficient vehicles, but it would not reduce vehicle miles driven.

Thus, to deliver the entire emissions cut by switching to greener energy while continuing to use approximately the same amount of energy, feebates or regulations would need to be used more aggressively.

Feebate and regulatory approaches generally do not raise revenue and therefore do not reap the efficiency benefit. At the same time, however, they have a much weaker impact on energy prices and therefore tend to cause much smaller reductions in labour supply, compared with those under carbon pricing. As a result, feebates and regulations can be less costly overall

Carbon taxes, ETS and feebates rely on the market system; e.g. a feebate that charges power-generating firms a fee (or gives them a rebate) for each kilowatt-hour that emits more (or less) than the industry average, firms will use the most efficient technology.

Regulations might not leave sufficient flexibility for households and firms to find least-cost options.

Likely political opposition:

A less efficient strategy would be less ambitious carbon taxes or ETS complemented by, or even substituted with, more forceful use of feebates or regulations.

The revenues collected through a carbon tax or ETS could be redeployed through cuts in other taxes or additional investment or assistance to improve economic efficiency and enhance political acceptability of mitigation measures.

whereas a $25 a ton price would be more than enough for some countries (for example, China, India, and Russia) to meet their Paris Agreement pledges, in other cases (for example, Australia and Canada) even the $75 a ton carbon tax falls short.

This dispersion reflects cross-country differences in the stringency of mitigation pledges.

With a $75 a ton carbon tax, coal prices would typically rise by more than 200 percent above baseline levels in 2030, because coal has a high carbon content and its baseline price per unit of energy is currently low.

This is indeed the purpose of a carbon tax: promoting a switch from carbon-rich fuels by making them costlier.

In the case of mitigation policies, the costs occur because the policies cause (1) a shift to cleaner but costlier technologies and equipment than people or firms would otherwise prefer; and (2) a decline in overall economic activity because of higher energy prices.

The economic efficiency costs of a $50 a ton carbon tax are equivalent to less than 0.5 percent of GDP in 17 countries. For most G20 countries, these costs are lower than the domestic environmental benefits stemming from the same measure—fewer deaths from air pollution as well as reductions in traffic congestion and accidents—before even counting climate benefits.

The domestic environmental benefits are especially large for countries with especially severe air pollution, such as China, India, and Russia.

comprehensive (umfassend)

well designed

revenues used wisely

They can be comprehensively applied to fuels by collection upstream or midstream and should cover imported but not exported fuels.

Carbon taxes with clearly specified rate schedules can establish predictable prices, with revenues accruing to finance ministries.

provide signals to consumers about which goods and services are carbon-intensive

provide signals to producers about which inputs are carbon-intensive (such as coal and oil) and thereby inducing firms to move to low- carbon technologie

market incentives for inventors, innovators, and investment bankers to invent, fund, develop, and commercialize new low-carbon products and processes

pricing promotes the full range of behavioural responses for reducing energy

pricing mobilizes a valuable source of revenue which can be used for achieving various economic and distributional objectives.

The Lorenz curve is a graph showing the proportion of overall income or wealth assumed by the bottom x% of the people.

It is often used to represent income distribution, where it shows for the bottom x% of households, what percentage (y%) of the total income they have. The farther the curve is from the baseline, represented by the straight diagonal line, the higher the level of inequality.

ETSs are typically around 40-70 percent as effective as broad carbon pricing, not because of the instrument itself but rather its assumed coverage (based on general practice to date) of power generators and large industry only. Road fuel taxes have effectiveness of mostly around 5-10 percent of carbon taxes as these fuels typically account for a minor proportion of emissions and carbon charging has a relatively modest impact on retail prices. In a few coal-intensive countries (e.g., China, India, Philippines, and South Africa), taxing coal alone can be almost as effective as a broad carbon tax.

less income trough ETS than carbon tax!