Transcript The evolution of a low carbon domestic energy system”

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Climate Change Working Group Book
Launch
Professor Paul Ekins (UCL)
Presents
Carbon-Energy Taxation: Lessons
From Europe
With a response from Frank Convery
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Carbon-Energy Taxation:
Lessons from Europe
A presentation by
Paul Ekins
Professor of Energy and Environment Policy
UCL Energy Institute, University College London
Institute for International and European Affairs
Dublin
October 14th 2009
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Book based on the outputs of
COMETR
COMpetitiveness effects of
Environmental Tax Reforms
COMETR was a Specific Targeted Research Project
(STREP) of the ‘Scientific Support to Policies’
initiative under the EU’s Sixth Framework
Programme for Research (FP6) 2004-2007
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COMETR partners
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Cambridge Econometrics
Economic and Social Research Institute, Dublin
Institute for Economic and Environmental Policy, Prague
Policy Studies Institute, London
Vienna Institute for International Economics
NERI, Aarhus University (coordinator)
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COMETR: a range of methods and research
techniques
• *Panel-regression analysis of price-setting power
in the international market
• *Panel-regression analysis of unit energy costs in
relation to GVA
• Industrial indicators at subsector level
• *Extension of E3ME
– empirical time-series estimated, disaggregated
econometric Energy-Environment-Economy model of
EU-25
• Case-studies of energy-intensive sectors and
subsectors
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Structure of Presentation
• Definitions of competitiveness
• Evolution of ETRs in Europe
– EC 1993, Chapter 10: “An insufficient use of labour
resources and an excessive use of environmental
resources”, leading to the conclusion “If the twin challenge
of unemployment/environmental pollution is to be
addressed, a trade-off can be envisaged between lower
labour costs higher pollution charges”.
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•
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Differences in tax rates
Sectoral results
Macroeconometric modelling of ETRs and results
Conclusions
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Definitions of Competitiveness
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Difference between national, sectoral and firm competitiveness
Firm: ability to sell its products in competitive markets (output growth,
profitability, market share), price and non-price competitiveness
Sector: different firms of different competitiveness (share of
international markets), different responses to regulation/taxation
(European Foundation results)
Country: European Commission: “a sustained rise in the standards of
living of a nation and as low a level of involuntary unemployment as
possible”; OECD: ‘the degree to which a country can, under free and
fair market conditions, produce goods and services which meet the test
of international markets, while simultaneously maintaining and
expanding the real incomes of its people over the longer term.’
Exchange rate adjustments.
NB Rise in real wages is both an indicator of competitiveness and
undermines it!
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ETR and Competitiveness
Ceteris paribus

Rise in environmental tax(es): may be expected to
reduce competitiveness

Compensating reduction in other tax(es): may be
expected to increase competitiveness

Possible increase in employment/output: if
reduced taxes are employment taxes, and there is
involuntary unemployment

Improvement in efficiency of resource use: may
be expected to increase competitiveness (and
economic security)

Improvement in environmental quality: may be
expected to increase competitiveness (if local)

Stimulation of environmental industries: may lead
to new industries/exports (if other countries also seek
environmental improvement)
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Indicators of competitiveness
• Costs (compare via exchange rates):
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–
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Unit costs
Labour costs (but high incomes desirable)
Energy costs (might decline if greater efficiency)
Energy prices
Market share (sectoral)
Trend productivity
Real exchange rate value
Non-price factors (firms): productivity growth,
delivery times, quality, after-sales service,
financial arrangements, technological
innovation, investment, institutional/structural
environment
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ETRs in Europe
Since 1990 significant ETRs in Denmark, Finland, Germany,
Netherlands, Sweden and UK
• Different tax base (energy, CO2, sectors), tax rates, revenue
recycling, exemptions

Environmental tax to GDP ratio increased in Denmark, Finland,
Germany, Netherlands; Sweden increase in env. tax to total tax
ratio; UK no increase in ratios

All countries have special arrangements for selected industrial
sectors (actual rates very different from nominal rates):
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With regard to the energy product (e.g. coal in Germany)
The setting of tax rates (reduced rates, exemption, refunds, lower
rate for high energy users)
Tax-free allowances
Ekins & Speck 2007: “Although the underlying reasons for
implementing ETRs in EU member states are alike, the design
of these tax shifting programmes differs greatly between
countries, varying in terms of the affected economic sectors as
well as adopted recycling mechanism. However, the various
reform processes all have the twin political objectives of
environmental improvement and support for employment.”
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Denmark
• Phase 1 1994 – 1998 (targeting the household
sector): tax shift 2.3% of GDP; reduced income
taxes; taxes on energy, water, wastewater, plastic
and paper bags
• Phase 2 1996 – 2000 (targeting mainly industry): tax
shift 0.2% GDP; reduction in employers’ SSCs and
energy efficiency subsidies; taxes on energy SO2;
complex incidence of energy tax (heating and
process distinction)
• Phase 3 1999 – 2002: tax shift 0.3% GDP; reduction
in income and pension taxes; mainly energy taxes
(industry only affected for heating)
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Finland
• Industry and households
• Phase 1 1997: tax shift 0.2% GDP; overall tax
reduction; reduction in income tax, SSCs;
increase in CO2 tax and landfill tax
• Phase 2 1998: tax shift 0.5% GDP; further
reduction of labour taxes; increased
environmental taxes and corporate profit tax
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Germany
• Phase 1 1999 – 2003: tax shift 0.9% GDP;
reduction in employers’ and employees’
SSCs increase in existing energy taxes and
introduction of an electricity tax;
disproportionately favourable treatment of
industry
• Phase 2 2004: increasing heating fuel taxes
on natural gas and on heavy fuel oil; removal
of environmentally damaging subsidies
abandoned because of political opposition.
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Netherlands
• ETR in 1998: tax shift 0.7% of GDP; revenues
recycled back to households (reduction in
income tax and increase in allowances) and
industry (reduction in SSCs)
• Tax differentiated according to ‘bands’ of
consumption (lowest rate for highest
consumption)
• Importance of voluntary agreements
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Sweden
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• First ETR in 1991 (first major ETR
in Europe): tax shift 4.6% GDP;
reduction in personal income taxes
and taxes overall; VAT on energy
purchases and introduction of SO2
and CO2 tax
• Second ETR 2001-2010: tax shift
around 0.4% GDP; reduction in
taxes paid by low and medium
wage earners and in taxes overall;
increased environmental taxes
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United Kingdom
• Three relatively modest ETRs (affecting
businesses not households): 1996 landfill tax,
tax shift 0.05% GDP; 2001 Climate Change
Levy, tax shift 0.06% GDP, 2002 aggregates
tax, tax shift 0.02% GDP; reduction in
employers’ SSCs; winners and losers
• Climate Change Agreements (CCAs) with
CCL: energy efficiency improvement targets,
80% tax rate discount for energy-intensive
firms
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Differences in energy costs,
energy prices
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•
•
•
•
Exchange rates
Energy import prices
Tariffication
Energy tax rates
Evolution of energy tax rates
• Focus on natural gas and electricity
• Consideration of tax exemption for industries
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Evolution of energy tax rates levied on natural gas
(unit: EUR per GJ in 1995 prices)
7.00
6.00
5.00
4.00
3.00
2.00
1.00
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90
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91
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92
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93
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94
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95
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96
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97
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98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
0.00
Denmark
Finland
Germany
Netherlands
Sw eden
UK
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Evolution of energy tax rates levied on natural gas
consumed by industry (unit: EUR per GJ in 1995 prices)
7.00
6.00
5.00
4.00
3.00
2.00
1.00
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90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
0.00
Denmark
Finland
Germany
Netherlands
Sw eden
UK
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Evolution of electricity tax rates
(unit: EUR per GJ in 1995 prices)
25.00
20.00
Denmark
15.00
Finland
Germany
Netherlands
10.00
Sw eden
UK
5.00
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90
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91
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92
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97
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99
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00
20
01
20
02
20
03
20
04
20
05
20
06
0.00
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Evolution of electricity tax rates consumed by
industry (unit: EUR per GJ in 1995 prices)
25.00
20.00
Denmark
15.00
Finland
Germany
Netherlands
10.00
Sw eden
UK
5.00
19
90
19
91
19
92
19
93
19
94
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95
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96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
0.00
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Issues for sectoral
competititiveness in addition to
those mentioned earlier
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•
•
•
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Energy tax rates
Carbon/energy intensity
Trade intensity
Competitive international markets (price
setter or price taker?)
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Price taker or price setter ?
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Panel regression analysis of 56 industry
sectors (1995-2003)
• unit energy costs
– 1 per cent increase in real energy price leads to 0,77
per cent increase in unit energy costs
– 1 per cent increase in real energy tax leads to 0,03
per cent increase in unit energy costs
•
•
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unit labour costs
– wage-unit labour cost relation more inelastic than tax-price to unit
energy cost relation
economic output
– 1 per cent increase in unit input costs leads to 0,3 per cent decline in
output
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Conclusions on Sectoral
Competitiveness
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Energy/electricity taxes determine relatively small
part of prices of energy
Country variations in ex-tax price of energy are larger
than difference in energy taxes; these have not led to
discernible difference in competitiveness
Industrial energy taxes are a small proportion of
‘nominal’ headline rates because of special
arrangements; major source of economic inefficiency
No country most energy efficient
No evidence of even likely major impact on
competitiveness – misplaced effort, complexity, and
efficiency in seeking to mitigate it
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Macroeconometric modelling of ETRs
with European model, E3ME
• Two main scenarios
• Baseline (B): endogenous for 1994-2012
including environmental tax reform
• 1994-2003: ex-post analysis
• 2003-2012: ex-ante analysis
• Reference (R): counterfactual, without
ETR
• Difference between R and B is effect of
ETR
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COMETR Results (1)
CHART 7.3: THE EFFECT OF ETR ON TOTAL FUEL DEMAND
% difference
Slovenia
0
-2
-4
Denmark
Germany
Netherlands
-6
Sweden
-8
1994
Note(s)
Finland
UK
1997
2003
2006
2009
2012
% difference is the difference between the base case and the counterfactual
reference case.
Source(s) : CE.
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:
2000
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COMETR Results (2)
CHART 7.4: THE EFFECT OF ETR ON GHG EMISSIONS
% difference
Slovenia
0
-2
Denmark
Germany
-4
Netherlands
UK
-6
Finland
-8
1994
Note(s)
1997
2003
2006
2009
2012
% difference is the difference between the base case and the counterfactual
reference case.
Source(s) : CE.
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:
2000
Sweden
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COMETR Results (3)
CHART 7.5: THE EFFECT OF ETR ON GDP
% difference
1
Finland
Netherlands
0.5
Germany
Denmark
0
Slovenia
Sweden
UK
-0.5
1994
Note(s)
2000
2003
2006
2009
2012
% difference is the difference between the base case and the counterfactual
reference case.
Source(s) : CE.
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:
1997
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COMETR Results (4)
CHART 7.6: THE EFFECT OF ETR ON EMPLOYMENT
% difference
1
Germany
Denmark
0.5
0
UK
Sweden
-0.5
1994
Note(s)
2000
2003
2006
2009
2012
% difference is the difference between the base case and the counterfactual
reference case.
Source(s) : CE.
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:
1997
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COMETR Results (6)
CHART 7.9: CONSUMER PRICE INDEX
% difference
5
Sweden
4
3
Finland
2
Netherlands
1
Germany
0
-1
1994
Note(s)
1997
2003
2006
2009
2012
% difference is the difference between the base case and the counterfactual
reference case.
Source(s) : CE.
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:
2000
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COMETR Results (8)
CHART 7.32: THE EFFECTS OF ETR: GDP IN ETR AND NON ETR
COUNTRIES
% difference
0.3
ETR Countries
0.2
0.1
Non ETR Countries
0.0
-0.1
1994
Note(s)
2000
2003
2006
2009
2012
% difference is the difference between the base case and the counterfactual
reference case.
Source(s) : CE.
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:
1997
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COMETR Results (9)
CHART 7.37: THE EFFECTS OF EXEMPTIONS: FUEL USE IN
DENMARK
% difference
0.0
Baseline vs Reference
-2.0
-4.0
No Exemptions vs Reference
-6.0
-8.0
1994
Source(s) : CE.
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1997
2000
2003
2006
2009
2012
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Conclusions on macroeconomic
modelling
• Fuel use and greenhouse gas emissions (GHGs):
reductions in all six countries
• Taxes and revenues: tax shift relatively small (1.25%
GDP max.)
• GDP and employment: quite small increase in both
• Impacts on prices: depends on method of revenue
recycling, but no need for an increase in the price
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Thank You
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