Some economic aspects of climate change Instruments and

Some economic aspects of climate change Instruments and statistics by Torstein Bye Director, Dep. of Economics, Energy and Environment Statistics Norway tab@ssb. no • Introduction • Instruments, why and how? Some basic features! • Instruments and statistics – how? • A Norwegian example - the benefit of the approach • Summary and conclusion CCD-and official statistics - Seoul 11 -12. 08 1

Introduction • The Stern report (Stern, 2008) – Climate change and economic consequences – Cost of mitigation, cost of adaptation – Cost efficient approach to mitigate • • Combatting climate change is about instruments. A range of instruments, – Economic instruments, technology instruments, regulatory instruments etc. – All instruments create shadow prices in the market –i. e. economic instruments – To understand effects are important when deciding upon what statistics we need • We produce a comprehensive number of consistent statistical tables – that allows us to perform consistent analyses both of driving forces, – and the impact of the instruments on emissions – Where does the statistics come from • We exemplify some interesting aspects – by combining actual figures for Norway from a set of such consistent tables. • Concludes CCD-and official statistics - Seoul 11 -12. 08 2

Taxes and subsidies Negative externality Discriminatory taxes Positive externality Discrimination Discriminatory subsidies Bye and Bruvoll (2008): Multiple instruments to change energy behaviour – the emperor new clothes CCD-and official statistics - Seoul 11 -12. 08 3

Green and White certificates Taxes are bad – subsidies are bad – I do not want to pay GC: Free certificate on supply – purchaser obligation WC: Obligation to save – trade for supplier Green certificates -supply White certificates -demand CCD-and official statistics - Seoul 11 -12. 08 4

Brown certificate – or carbon trade Limit the amount: A shadow price occur Initial allocation Distribution of cost and benefits Taxes an subsidies CCD-and official statistics - Seoul 11 -12. 08 5

Supplementary instruments • Regulation - shadow price – “tax” – “subsidy” • Standards - shadow price – “tax” an “subsidy” • R&D – subsidy – and a “tax” • Market concentration – regulation? – Good for the environment - Tax and subsidy Fundamentally: • All instruments are fundamentally a combination of: – a tax and a subsidy • When producing statistics: – we should remember that and treat them equally CCD-and official statistics - Seoul 11 -12. 08 6

Instruments and statistics Sector Agriculture Gasoline Fuel oil Coke Coal Wood Waste Intermediates Waste Gasoline Fuel oil Coke Coal Wood. Waste Intermediat es Intermediates Agriculture Primary industries Fisheries Top down versus bottom up approach Forestry The fundamental bottom up approach Pulp and paper Input – output or activity tables paper Machinery A detailed sector list Manufacturing Machinery Emission coefficient of compound x on the cell activity Manufacturing A detailed commodity list Metals from table 1 Amount of emission carrier Other Amount of emissions of compound x – the product Physical or economic values (fixed prices) Technology information Construction of table 1 and 2 Energy account and national account CO 2 – straightforward – carbon in CO 2 out Electricity etc Bridging table to energy balances CH 4 – burning technology Banking Brings discipline to the statistical work Banking HFC, CFC, SF – Process technology 6 Insurance Analyses of driving forces Insurance Private Services Transport Analysis of the effects of instruments Transport Other The role of UN Other Forestry Other Public services Residential CCD-and official statistics - Seoul 11 -12. 08 7

Instruments and statistics Sector Gasoline P Agriculture Manufacturing Services T S Fuel P T Coke S P T Coal S P T Wood S P T Intermedia tes Waste S P T S Table 3 - split into processes (P) - Transport (T) and Stationary (S) end uses – Why; - discriminatory or - different environmental impact - tax rates per unit - subsidies vary - allowances vary? - certificates vary? - regulation vary? Tax rates for each emission activity Same principle for all instruments Households CCD-and official statistics - Seoul 11 -12. 08 8

Instruments and statistics -taxes • Taxes – Table 4 x-x – Rate on volumes of proven environmental impact w Ex. emissions of carbon dioxide. – Data collection and definition – are tax rates split ? : w Simple in theory – difficult in practice ? cf. Eurostat (2001) – Ramsey, environmental, energy, resource, transportation infrastructure, – Bye and Bruvoll (2008 b) w Harmonize with the total collected taxes measured in public accounts – (i. e. a tax account matrix). – Steinbach et al. (2008 a) w Environmental taxes in the context of the SEEA CCD-and official statistics - Seoul 11 -12. 08 9

Instruments and statistics - subsidies • Subsidies – table 5 x-x – A measure that keeps prices below their market value for consumers and above market value for producers. – In practice - direct transfers or tax credits (foregone income) – In UNEP (2004) direct transfers, public R&D, preferential tax treatments, price controls and loans-lower than market interest rate – Our paper have a much broader definition (? ) of subsidies - only possible to calculate indirectly –cf. market responses – relevant data – Data collection w Subsidies are normally launched to investment projects in terms of a specific w w w amount or a lump sum to producing facilities based on a production basis (for instance a feed in tariff – i. e. a unit subsidy) for facilities that want to save the use of input (energy efficiency projects) on the demand side, either lump sum or per unit. Lump sum subsidies are normally linked to some kind of volume measures, i. e. they may be transformed to a unit measure. In practice this measure is complex and some data transformation processes are needed to make the measures comparable in units. Subsidies are normally directed towards detailed projects, i. e. these data are on matrix form, cfr. table 3. The bright side - government will normally establish some kind of a register – Steinbach et al. (2008 b) discusses Environmental subsidies in the context of the SEEA manual. CCD-and official statistics - Seoul 11 -12. 08 10

Instruments and statistics –carbon market • • • Carbon market – table 6 x-x – allow trading of these allowances, i. e. a shadow price of the restriction shows up in the market. – A shadow price equal to the tax will produce the same cost efficient environmental output Two sets of statistical tables – one for the initial assignment of free allowances in volumes (implies also a value transfer – volume times the market price) – a second for a following up of the economic and volume exchange through the trading of emission permits – Aggregates over the columns in table 3: normally directed towards sectors and not activities – but who knows what will happen? Data source – The assigned amount of allowances may be collected from public registers w grandfathered, i. e. based on historic emissions, w other free emissions (for instance for new facilities). w Surrendered emission, w The “verified” emissions follow from table 3. – Trade of permits – both volumes and values (some may not be tradable) w Allowances – public registers w CDM trade –public registers w JI trade –public registers w Verified emissions – table 3 w Net trade on exchange – accounting principle – The permit market in the context of the SEEA manual and the SNA - Olsen (2008). CCD-and official statistics - Seoul 11 -12. 08 11

Instruments and statistics – GC-WC-etc. • • • Green certificates – table 7 x-x – Approval - delivery of the number of certificates by technology choice and firms in public registers – The value of the certificate on the pool /exchange – Energy balance (residential) or the energy account (territorial) framework depends upon national or international framework? White certificate - table 8 x-x – Public register of how much each firm/sector is supposed to save – The principal agent assumption eases the data collection. w Each agent (for instance a distribution company for electricity) has to verify the savings and the cost for each principal (consumer) Regulation table – table 9 x-x – Regulations are normally set up by public firms on a firm specific regime. – Public sector should follow up on their own regulation w both the regulated and the verified outcome is registered – consistency check to table 3 – The information needed then should be based on these registers. CCD-and official statistics - Seoul 11 -12. 08 12

A Norwegian example (table 3, 4, 6) multiple studies of driving forces –and instruments? oct 2008: 25 €/tonne CO 2 dec 2008: 15 €/tonne CO 2 CCD-and official statistics - Seoul 11 -12. 08 13

A Norwegian example–who pays how (to) much? NOK/tonne CO 2 Landfills EU/ETS oct 2008: 25 €/tonne CO 2 Extraction of oil and gas Households Sea- and land transport ~0. 4 bill. € ”Processing emissions ~0. 3 bill. € ~0. 8 bill. € mill. tonnes CO 2 CCD-and official statistics - Seoul 11 -12. 08 14

Summary and conclusion • Mitigation is about instruments • Complex instruments introduced • All instruments is a combination of tax and subsidy • Statistics for just one instrument is a lie? • Statistics for all instruments on the same principle • Input/output matrix • Tax rates • Registers • Accounting • Analyses made possible – Driving forces – Effect of instruments – partially/bilaterally/trilaterally/multilaterally CCD-and official statistics - Seoul 11 -12. 08 15