Carbon Pricing International spillovers and carbon pricing policies Geoffroy Dolphin 1 , Michael Pollitt 1 1 Cambridge Judge Business School and EPRG IAEE European Conference Sept. 4-6, 2017 Vienna, Austria 1 / 19
Carbon Pricing Motivation ◮ Multilateral action (UNFCC) has delivered “weak” environmental results Source: National Observer, based on NOAA data 2 / 19
Carbon Pricing ◮ Uncoordinated (carbon pricing) initiatives Source: World Bank (2016) Schemes list 3 / 19
Carbon Pricing Research Objectives ◮ Focus: learning , both in policy and technology 4 / 19
Carbon Pricing Research Objectives ◮ Focus: learning , both in policy and technology ◮ Quantify/assess those effects for domestic policy developments 4 / 19
Carbon Pricing Proposition ◮ Current policy developments linked to demonstration effects and technological improvements; 5 / 19
Carbon Pricing Proposition ◮ Current policy developments linked to demonstration effects and technological improvements; ◮ (Spillover) effects ∼ trade relationships with carbon abating partners 5 / 19
Carbon Pricing Proposition ◮ Current policy developments linked to demonstration effects and technological improvements; ◮ (Spillover) effects ∼ trade relationships with carbon abating partners Corollary Jurisdictions more likely to introduce climate mitigation policies are “close” to those with existing abatement policies and technologies 5 / 19
Carbon Pricing Literature Trade and the environment ◮ Barrett (1994): non-cooperative equilibrium, trade and emissions abatement ◮ Copeland and Taylor (2005): analysis of abatement commitments by the “rich North” in the wake of Kyoto ◮ Frankel and Rose (2005): trade flows and local pollutants 6 / 19
Carbon Pricing Literature Trade and the environment ◮ Barrett (1994): non-cooperative equilibrium, trade and emissions abatement ◮ Copeland and Taylor (2005): analysis of abatement commitments by the “rich North” in the wake of Kyoto ◮ Frankel and Rose (2005): trade flows and local pollutants Signalling/Technological Spillovers ◮ Grossman and Helpman (1991): trade and knowledge spillovers ◮ Fankhauser et al. (2016): climate policy 6 / 19
Carbon Pricing The Model ◮ Static GE, CRS (abatement) technology, 2 inputs: K,L (inelastic supply) ◮ Exogenous output prices: (p,1) ◮ n countries, non-cooperative eq. 7 / 19
Carbon Pricing The Model ◮ Static GE, CRS (abatement) technology, 2 inputs: K,L (inelastic supply) ◮ Exogenous output prices: (p,1) ◮ n countries, non-cooperative eq. ◮ Clean ( y ) sector y = F ( K y , L y ) Dirty ( x ) sector x = B ( K x , L x ) − φ B ( K x , L x ) = (1 − φ ) B ( K x , L x ) (1) e = Ω( ψ ) χ ( φ ) B ( K x , L x ) (2) � �� � ���� Abatement Abatement technology function “quality” 7 / 19
Carbon Pricing Abatement technology and spillovers �� � � ψ i ≡ C Γ i , h σ h , Γ i , h ¯ (3) κ h h ∈ Θ h ∈ Θ ◮ ¯ κ h : partner h abatement technology stock ◮ σ h : partner h signal ◮ Γ i , h : bilateral trade-weight 8 / 19
Carbon Pricing Data Panel (unbalanced) ◮ 1990-2014 ◮ 121 countries, 50 US States (DC) Sources ◮ CO 2 price: own ‘survey’ ◮ CO 2 emissions: IEA (2016) ◮ Value added: United Nations Statistics Division (2017a,b) ◮ Bilateral trade: IMF, Direction of Trade (2017) 9 / 19
Carbon Pricing Hypotheses Signalling ◮ Import- or export-related ◮ Free riding effect? Technological spillovers ◮ Imports: embodied knowledge ◮ Exports: exchange of ideas 10 / 19
Carbon Pricing Data – policy development Emissions-weighted Carbon Price 80 Sweden 70 Finland Slovenia 60 Norway 2015 $US (/tCO2e) Switzerland 50 Denmark 40 New Zealand World 30 20 10 0 1990 1995 2000 2005 2010 11 / 19
Carbon Pricing Signalling/demonstration ◮ Climate policy developments: cum. # of climate laws passed Trade-weighted Climate Laws (imports) Trade-weighted Climate Laws (exports) UK UK Finland Finland 4 4 Slovenia Slovenia Norway Norway Number of Laws Number of Laws Switzerland Switzerland 3 3 Chile Chile New Zealand New Zealand 2 United States 2 United States 1 1 0 0 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 12 / 19
Carbon Pricing ◮ Carbon pricing: # of carbon pricing schemes, CO2 price Imports from carbon pricing jurisdictions Exports to carbon pricing jurisdictions 0.8 Sweden Sweden 0.8 Finland Finland 0.7 Slovenia Slovenia (share of total goods imports) Norway Norway (share total goods exports) 0.6 Switzerland Switzerland 0.6 Denmark Denmark 0.5 New Zealand New Zealand United States United States 0.4 0.4 Canada Canada 0.3 0.2 0.2 0.1 0.0 0.0 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 CO2 price 13 / 19
Carbon Pricing Technology ◮ Cumulated RE installed capacity Trade-weighted installed RE capacity (imports) Trade-weighted installed RE capacity (exports) 40000 40000 UK UK 35000 35000 Finland Finland Slovenia Slovenia 30000 30000 Norway Norway 25000 Switzerland 25000 Switzerland New Zealand New Zealand 20000 20000 MW MW United States United States World World 15000 15000 10000 10000 5000 5000 0 0 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 Pollution payments 14 / 19
Carbon Pricing Results Signalling ◮ Pricing (imports): implementation (+, t ), stringency (+, t ) ◮ Pricing (exports): implementation (/), stringency (-, t , t − 1) ◮ CO2 price (imports): implementation (/), stringency (+, t , t − 1) ◮ CO2 price (exports): implementation (/), stringency (-, t − 1) ◮ Climate policy: implementation (/), stringency (+, t − 1) 15 / 19
Carbon Pricing Results Signalling ◮ Pricing (imports): implementation (+, t ), stringency (+, t ) ◮ Pricing (exports): implementation (/), stringency (-, t , t − 1) ◮ CO2 price (imports): implementation (/), stringency (+, t , t − 1) ◮ CO2 price (exports): implementation (/), stringency (-, t − 1) ◮ Climate policy: implementation (/), stringency (+, t − 1) Technology spillover ◮ RE cap: implementation (+), stringency (/) ◮ Lagged, import-weighted 15 / 19
Carbon Pricing General environment ◮ GDP: ($1000) raises the ECP by $0.11 ◮ EU: $4.6 – $5.2 ◮ Trade openness: -$0.01, if any ◮ Altruism effect 16 / 19
Carbon Pricing Conclusions ◮ Carbon pricing policies linked to demonstration and technological spillover effects ◮ Some free riding effect (stringency) ◮ “Diffusion” process through import channels ◮ Trade can foster carbon pricing policies development 17 / 19
Carbon Pricing Bibliography (I) Barrett, S. (1994). Self-enforcing international environmental agreements. Oxford Economic Papers , 46:878–894. Copeland, B. and Taylor, M. (2005). Free trade and global warming: a trade theory view of the kyoto protocol. Journal of Environmental Economics and Management , 49:205–234. Fankhauser, S., Gennaioli, C., and Collins, M. (2016). Do international factors influence the passage of climate change legislation? Climate Policy , 16(3):318–331. Frankel, J. and Rose, A. (2005). Is trade good or bad for the environment? sorting out the causality. The Review of Economics and Statistics , 87(1):85–91. Grossman, G. and Helpman, E. (1991). Trade, knowledge spillovers, and growth. European Economic Review , 35:517–526. World Bank (2016). State and trends of carbon pricing . Washington, DC. 18 / 19
Carbon Pricing Bibliography (II) [data1] IEA (2016). IPCC fuel combustion emissions (2006 guidelines). [data2] IMF, Direction of Trade (2017). [data3] United Nations Statistics Division (2017a). UNdata - Table 2.3 Value added by industries at constant prices (ISIC Rev. 4). [data4] United Nations Statistics Division (2017b). UNdata - Table 2.6 Value added by industries at constant prices (ISIC Rev. 4). 19 / 19
Carbon Pricing Trade-weighted CO2 price (jurisdiction of origin) Trade-weighted CO2 price (jurisdiction of destination) Sweden Sweden 25 Finland Finland 20 Slovenia Slovenia Norway Norway 20 Switzerland Switzerland (2014 USD/tCO2) Denmark (2014 USD/tCO2) 15 Denmark New Zealand New Zealand 15 10 10 5 5 0 0 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 Back 1 / 4
Carbon Pricing ◮ Pollution Payments Trade-weighted pollution payments (imports) Trade-weighted pollution payments (exports) 0.00010 Sweden Sweden Finland 0.00008 Finland Slovenia Slovenia 0.00008 Norway Norway Switzerland Switzerland 0.00006 Denmark Denmark 0.00006 New Zealand New Zealand 0.00004 0.00004 0.00002 0.00002 0.00000 0.00000 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 Back 2 / 4
Carbon Pricing Imports from carbon pricing jurisdictions Exports to carbon pricing jurisdictions California California New York New York 1.0 Washington Washington 0.4 Massachusetts Massachusetts Maryland Maryland 0.8 (% total imports) Connecticut (% total exports) Connecticut Pennsylvania Pennsylvania 0.3 New Jersey 0.6 New Jersey Rhode Island Rhode Island 0.4 0.2 0.2 0.1 0.0 2008 2011 2014 2002 2005 2008 2011 2014 3 / 4
Carbon Pricing 4 / 4
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