How m uch w ould the Kyoto protocol cost to consum ers? Mnica - PowerPoint PPT Presentation

This project is funded by the European Commission, Research Directorate General as part of the 7th Framework Programme, Theme 8: Socio-Economic Sciences and Humanities. Grant Agreement no: 225 281 How m uch w ould the Kyoto protocol cost to consum ers? Mònica Serrano & Erik Dietzenbacher Final W I OD Conference – Groningen, 2 4 – 2 6 April, 2 0 1 2

Outline  I ntroduction  The price input-output m odel  W I OD and assum ptions  Scenario analysis  Conclusions 2 / Serrano & Dietzenbacher – WIOD Final Conference

Outline  I ntroduction  The price input-output m odel  W I OD and assum ptions  Scenario analysis  Conclusions 3 / Serrano & Dietzenbacher – WIOD Final Conference

Motivation  How m uch w ould the Kyoto Protocol cost to consum ers? - Five-year accounting period 2008-2012 is near to be accomplished. - Consumers (we) need to have direct and clear information.  Literature: - Weyant (1999) - Little attention paid by IO literature. 4 / Serrano & Dietzenbacher – WIOD Final Conference

W hat w e do  W e w anted to know w hat w ould have been the cost for final consum ers if Annex B countries had fulfilled their Kyoto em ission targets: - WIOD data. - For each country we estimate the amount of emission that exceed the target. - We assume that industries incur environmental cost per ton of extra emissions to reduce them. - We further assume that these costs will pass along to consumers in the form of higher prices of goods. - Finally, cost to consumers is measured as a variation in the cost of their consumption bundle. 5 / Serrano & Dietzenbacher – WIOD Final Conference

Outline  I ntroduction  The price input-output m odel  W I OD and assum ptions  Scenario analysis  Conclusions 6 / Serrano & Dietzenbacher – WIOD Final Conference

Price I O m odel  I nter-country input-output table: Z 11 Z 12 Z 1r h 11 h 12 h 1r x 1 Z 21 Z 22 Z 2r h 21 h 22 h 2r x 2 Z r1 Z r2 Z rr h r1 h r2 h rr x r ( v 1 ) ’ ( v 2 ) ’ ( v r ) ’ ( x 1 ) ’ ( x 2 ) ’ ( x r ) ’ = + + + + Value of output = value of its interm ediate inputs +  p x p z p z p z wl j j 1 1 j 2 2 j n nj j value of prim ary inputs 7 / Serrano & Dietzenbacher – WIOD Final Conference

Price I O m odel  I n m atrix term s: p price per unit of sector’s output A input coefficients L = ( I – A ) -1 Leontief inverse v primary cost per unit of output − = − = = + 1 p p A v p ' v I '( A ) v L ' ' ' ' ( ) =   W ith a m onetary I OT: p ' 1 1 1 8 / Serrano & Dietzenbacher – WIOD Final Conference

Price I O m odel  d Cost on extra em issions: - CO 2 abatement cost, environmental taxes, EUA in EU-ETS,…  New price: = + + p p A v d ' ' ' '  I m pact on prices of this extra cost: ∆ = − = p p p d L ' ' ' ' 9 / Serrano & Dietzenbacher – WIOD Final Conference

Price I O m odel  Price I O m odel: - It’s assumed that all producers fully pass their costs on to the buyers. - So, as a last resort, it’s the consumer who fully bears the extra cost.  Extra cost to consum ers = consum ption price index n = ∑ p c i i = i 1 CPI L n ∑ p c i i = i 1 10 / Serrano & Dietzenbacher – WIOD Final Conference

Outline  I ntroduction  The price input-output m odel  W I OD and assum ptions  Scenario analysis  Conclusions 11 / Serrano & Dietzenbacher – WIOD Final Conference

Data  W I OT at current prices 2 0 0 6 : - 35 industries; 40 countries + RoW. - Release April 2012.  Air em issions of CO 2 , N 2 O and CH 4 expressed in kilotons of CO 2 equivalent: - Conversion factors: CO 2 1 N 2 O 310 CH 4 21 12 / Serrano & Dietzenbacher – WIOD Final Conference

Assum ptions  1 9 9 5 as an approxim ation of Kyoto base year 1 9 9 0 .  2 0 0 6 as the hypothetical year of actuation.  Em issions from all sectors ( not only energy) are considered.  Household em issions are not considered. 13 / Serrano & Dietzenbacher – WIOD Final Conference

Assum ptions  Environm ental cost = 0 : - If country fulfilled their Kyoto target in 2006. - For non-Annex B countries. Environm ental cost on extra em issions ( d = ζ e) :  - Emissions in 2006 minus emission target in 2012 multiplied by monetary cost.  I t’s assum ed that USA ratified the Kyoto protocol in 2 0 0 5 . 14 / Serrano & Dietzenbacher – WIOD Final Conference

Outline  I ntroduction  The price input-output m odel  W I OD and assum ptions  Scenario analysis  Conclusions 15 / Serrano & Dietzenbacher – WIOD Final Conference

Different Scenarios Scenario 1 Scenario 2 Scenario 3 Environmental cost Environmental cost Environmental cost $26.3 tn/CO 2 $100 tn/CO 2 $75.3 tn/CO 2 • I: Kyoto targets for Annex B countries • II: China has had the same target as USA (i.e. 93) • III: China had agreed to reduce the same amount of emissions that USA does (i.e. 130) • IV: III + all non-Annex B countries have had USA target (i.e. 93) (* ) Considering USA ratified the protocol in 2005. 16 / Serrano & Dietzenbacher – WIOD Final Conference

Results: Average CPI  Δ prices ( average) : Scenario 1 Scenario 2 ($26.3 tn/CO 2 ) ($100 tn/CO 2 ) I 0.08% 0.30% 0.18% 0.69% II 0.13% 0.50% III 0.37% 1.40% IV 17 / Serrano & Dietzenbacher – WIOD Final Conference

Results: Max & Min CPI  Δ prices ( m axim um & m inim um ) : Scenario 1 Scenario 2 ($26.3 tn/CO 2 ) ($100 tn/CO 2 ) Max LTU 0.28% 1.06% I Min BRA 0.01% 0.03% Max CHN 2.30% 8.73% II Min BRA 0.03% 0.10% Max CHN 1.18% 4.48% III Min BRA 0.02% 0.06% Max IDN 1.92% 7.28% IV Min GRC 0.10% 0.37% 18 / Serrano & Dietzenbacher – WIOD Final Conference

Outline  I ntroduction  The price input-output m odel  W I OD and assum ptions  Scenario analysis  Conclusions 19 / Serrano & Dietzenbacher – WIOD Final Conference

Conclusions  W hat w ould have happened if Kyoto countries had paid a cost for the extra-em issions? - “Nothing” in terms of price increase.  Could w e have borne the cost of Kyoto protocol in term s of “inflation”? - Yes.  How m uch w ould the Kyoto protocol cost to consum ers? - Not too much. 20 / Serrano & Dietzenbacher – WIOD Final Conference

Conclusions  W e have to pay attention to the role played by China and other non-Annex B countries.  W e have to sm ooth som e assum ptions over.  This exercise provide a roughly idea about w hat w ould have been the cost of fulfil the Kyoto protocol. 21 / Serrano & Dietzenbacher – WIOD Final Conference

This project is funded by the European Commission, Research Directorate General as part of the 7th Framework Programme, Theme 8: Socio-Economic Sciences and Humanities. Grant Agreement no: 225 281 Thank you for you attention Final W I OD Conference – Groningen, 2 4 – 2 6 April, 2 0 1 2