Motivation WIOD CGE Model Simulation Results Conclusion www.zew.de · www.zew.eu Taxing Carbon along the Value Chain. A WIOD CGE Application. Oliver Schenker, Simon Koesler, Andreas Löschel Zentrum für Europäische Wirtschaftsforschung WIOD Final Conference, Groningen 25.04.2012 1
Motivation WIOD CGE Model Simulation Results Conclusion www.zew.de · www.zew.eu Relevance ■ Lessons from Durban et al.: Long way to go to reach a global climate agreement. ■ Subglobal climate coalitions still want to proceed. ■ But then: carbon leakage, competitveness concerns. ■ Simulation studies: IPCC (2007): Carbon Leakage from Kyoto: 5 - 20%. ■ Econometric studies: Aichele and Felbermayr (2011) 8% increase of trade in embodied carbon from Non-Annex B to Annex B countries. ■ Peters et al. (2011): Net emissions transfer through international trade from developing to developed countries: 1990: 0.4 Gt CO 2 , 2008: 1.6 Gt CO 2 2
Motivation WIOD CGE Model Simulation Results Conclusion www.zew.de · www.zew.eu Border Measures ■ Idea: Implement border measures (BTA) to adress those issues. ■ Add a border tax on foreign unregulated CO 2 emissions. ■ Markusen (1975), Copeland (1996): Border measures belong to the optimal policy portfolio in transboundary pollution problems. ■ Böhringer et al. (2011) analyse such tariff on embodied carbon by using a CGE model with GTAP 7.1 data. 3
Motivation WIOD CGE Model Simulation Results Conclusion www.zew.de · www.zew.eu Vertical Specialization ■ Increasing vertical specialization since WWII. ■ Hummels et al. (2001): International trade caused by VS increased by 30% (1970-1990) ■ More complex trade networks may lead to double regulation of traded CO 2 . 4
Motivation WIOD CGE Model Simulation Results Conclusion www.zew.de · www.zew.eu Non-EU Embodied Carbon in EU products TRN PSPS PPP NMM NaP Metal Man FBS F EGW CPN CCP C 50t52 17t19 0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 kg CO2 per USD Output AUS BRA CAN CHN IND MEX RUS USA EAs 5
Motivation WIOD CGE Model Simulation Results Conclusion www.zew.de · www.zew.eu Outline Motivation WIOD CGE Model Calibration Scenarios Simulation Results Carbon Leakage Sectoral Effects Welfare Vertical Specialization Conclusion 6
Motivation WIOD CGE Model Simulation Results Conclusion Calibration Scenarios www.zew.de · www.zew.eu WIOD CGE Model Computable General Equilibrium (CGE) Model in the tradition of PACE, etc. ■ Production through nested CES functions with CRS. ■ International linkages: Armington (1969) trade, no factor mobility, no transport costs ■ Substitution of energy by value added. ■ BTA: Measuring embodied carbon and value it with coalition carbon price. ■ Formulated as Mixed Complementarity Problem 7
Motivation WIOD CGE Model Simulation Results Conclusion Calibration Scenarios www.zew.de · www.zew.eu Calibration ■ IO data from the WIOD project: 40 countries, 35 sectors, 1995- 2005 -2009. ■ Aggregated to 11 regions, 14 sectors ■ Sectoral CO 2 data from WIOD environmental satellite accounts ■ Behavioral parameters taken from Koesler and Schymura (2012). 8
Motivation WIOD CGE Model Simulation Results Conclusion Calibration Scenarios www.zew.de · www.zew.eu Scenarios 1. Reduction only ■ 20% CO 2 reduction relative to baseline in a coalition of EU, Australia, developed East Asian countries (Japan, South Korea, Taiwan) ■ No border measures 2. BTA full ■ Same reduction as in Reduction only , ■ but accompanied by a tariff on embodied carbon. ■ if crosses border into coalition: embodied carbon priced with internal carbon price, ■ no matters where the carbon comes from. 3. BTA corrected ■ As BTA full , ■ but only embodied carbon from non-regulated countries is taken into account. 9
Motivation WIOD CGE Model Simulation Results Conclusion Carbon Leakage Sectoral Effects Welfare Vertical Specialization www.zew.de · www.zew.eu Effects on Carbon Leakage REDUCTION ONLY BTA CORRECTED BTA FULL 0 ‐ 2 ‐ 2.03 ‐ 2.15 ‐ 4 [%] Carbon Leakage ‐ 6 ‐ 8 ‐ 10 ‐ 10.77 ‐ 12 10
Motivation WIOD CGE Model Simulation Results Conclusion Carbon Leakage Sectoral Effects Welfare Vertical Specialization www.zew.de · www.zew.eu Sectoral effects: Coke Coke, Refined Petroleum and Nuclear Fuel AUS BRA CAN CHN EAs EUR IND MEX RUS USA ‐ 2 [%] Change Output ‐ 7 ‐ 12 BTA FULL BTA CORRECTED ‐ 17 REDUCTION ONLY ‐ 22 11
Motivation WIOD CGE Model Simulation Results Conclusion Carbon Leakage Sectoral Effects Welfare Vertical Specialization www.zew.de · www.zew.eu Sectoral effects: Metal Basic and Fabricated Metal AUS BRA CAN CHN EAs EUR IND MEX RUS USA 5 [%] Change Output 0 ‐ 5 BTA FULL ‐ 10 BTA CORRECTED REDUCTION ONLY ‐ 15 12
Motivation WIOD CGE Model Simulation Results Conclusion Carbon Leakage Sectoral Effects Welfare Vertical Specialization www.zew.de · www.zew.eu Welfare effects BRA CAN CHN EAs EUR IND MEX RUS USA 0.2 0 ‐ 0.2 ‐ 0.4 ‐ 0.6 [%] Hicks EV ‐ 0.8 ‐ 1 BTA FULL ‐ 1.2 BTA CORRECTED ‐ 1.4 REDUCTION ONLY ‐ 1.6 ‐ 1.8 13
Motivation WIOD CGE Model Simulation Results Conclusion Carbon Leakage Sectoral Effects Welfare Vertical Specialization www.zew.de · www.zew.eu Change in VS share of total exports AUS CHN EAS EUR RUS 2 0 ‐ 2 ‐ 4 [%] Change ‐ 6 ‐ 8 BTA FULL ‐ 10 BTA CORRECTED ‐ 12 REDUCTION ONLY ‐ 14 14
Motivation WIOD CGE Model Simulation Results Conclusion www.zew.de · www.zew.eu Concluding Remarks ■ Using the WIOD CGE model: ■ Tariff on embodied carbon is effective, ■ but shifts burden to non-coalition regions. ■ Differentiated carbon tariff has has not much value added (but depends on assumed policy scenario) ■ Effects of climate policy measures on vertical specialization need more attention. 15
Motivation WIOD CGE Model Simulation Results Conclusion www.zew.de · www.zew.eu Thank you for your attention! schenker @ zew.de +49 621 1235229 www.zew.de 16
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