Transcript What will be the effects on the European Union economy of new

Mathias Mortensen
Santiago Nuñez Silva
Sean Stevens
Wilfried Genest
Plan of presentation
a) Why does the EU need to cut CO2 emissions?
b) A case study of a CO2 emission reduction policy
i. Aims
ii. Actions taken
iii. Results and Costs
c) The Copenhagen agreement
i. Aims
ii. Policy proposed
iii. Possible effects on the European economy
d) Conclusion.
Why does the EU need to cut CO2
emissions?
Kyoto protocol
• Europe is supposed to reduce its annual CO2
emissions by 8% (compared to 1990) by 2012.
• In 2007, the CO2 emissions were 5% smaller than
in 1990.
• In 2008, 6.2% smaller.
• By 2012, 13% smaller (estimation from EEA).
Territory size in proportion to annual CO2
emissions
13.5% of world annual CO2 emissions...
Cumulative Carbon Emissions 1900-1999
…but 27.7% of CO2 emissions since 1900.
Existing Measures: a brief case study
Aims: reduce car CO2 emissions
• 2007 reduction goals
– Reduce car emissions to 120g/Km by 2012
• Road Transport makes up for 20% of the total
EU CO2 emissions
– Passenger cars make up for 12%
Repartition by economic sectors
•
Energy industries 1577.4 tonnes
•
Transport
968.8 tonnes
•
Industry
944.7 tonnes
•
Household
468.6 tonnes
•
Services
185.3 tonnes
•
Other
112.8 tonnes
Actions taken
Three main pillars
- Pressure on European, Japanese and Korean car
makers to reduce CO2 from their new cars sold in
the EU to 140g/km by 2008.
- EU directives require the display of labels
indicating CO2 emissions on new cars sold.
- Fiscal policies (tax breaks and extra taxes)
Results and Costs
• Cost the manufacturer 1700€ more per
vehicle (due to higher investments).
• This leads to an increase of 2450€ for
consumers.
• Target not yet achieved. Average emission is
currently 140g/Km.
The Copenhagen agreement:
new aims.
(to be filled when conference ends
around the 18th of Dec.)
Policy proposed
Subsidies, cap-and-trade, tariffs...
More subsidies?
Supply
Market for green energy industry
Average price of green energy (€)
Supply + subsidies
P1
P2
Demand
Q1
Q2
Quantity of green energy demanded/supplied (million of tons)
More cap-and-trade?
• Each industry is allowed to emit a certain level
of CO2, these “permits to pollute” can then be
sold to and bought from other companies.
A CO2 tariff?
Market for industrial goods
Average price of industrial goods (€)
Domestic supply
Domestic demand
0
Quantity of industrial goods demanded/supplied (million of tons)
A CO2 tariff?
Domestic supply
World Supply
World
Price
Imports
Domestic demand
0
Average price of industrial goods (€)
Market for industrial goods
Qsupplied
Qdemanded
Quantity of industrial goods demanded/supplied (million of tons)
A CO2 tariff?
Domestic supply
World
Price
+ CO2
tariff
World Supply + tariff
World
Price
World Supply
Imports
Domestic demand
0
Average price of industrial goods (€)
Market for industrial goods
Qsupplied
Qdemanded
Quantity of industrial goods demanded/supplied (million of tons)
A CO2 tariff?
Domestic supply
World
Price
+ CO2
tariff
World Supply + tariff
New
(lower)
Imports
levels
0
Average price of industrial goods (€)
Market for industrial goods
Qsupplied
Domestic demand
Qdemanded
Quantity of industrial goods demanded/supplied (million of tons)
Disadvantages?
Emissions trade agreement
• (2005-2007) Too many permits were allocated
making them worthless in values
• (2007-2009) Burden moved to consumers.
Recession led to lower CO2 emissions. Hence
there were still too many permits on the
allocation market.
Cost to Europe
• Unequal share of the environmental burdens between
national energy suppliers (Western countries already
have “greener” energy ).
• Investments could reach as high as 1 trillion €.
• Industrial products will increase in prices which will
make them uncompetitive (main export of EU being
machinery).
• Could lead to inflation as prices of good will increase.
Higher standards?
Supply + rigid
environmental standards
Market for machinery
Average price of machinery (€)
Supply
P2
P1
Demand
Q2
Q1
Quantity of machinery demanded/supplied (million of tons)
Weakening Europe
• Disagreements upon targets for Copenhagen’s
conference- poorer EU countries do not want
to pay for the poor countries outside the EU.
• Europe could have to pay up to 15 billion
euros a year to the LEDC’s.
• A CO2 tariff could lead to a “trade war”.
Advantages?
Economic Advantages
• Creation of new jobs
– New industry would emerge to deal with further
reductions in CO2 emission.
– Already employs 300,000 people and has an annual
turnover of 15 billion €.
• Could lead to even lower prices for green energy
– Improvements in technology and in the industrial
processes.
– Economies of scale (Green energy will cost less as
more is produced)
Economic Advantages
• Improvements in health
– Lower the costs induced by the diseases caused by
air pollution.
• Help to prevent climate change and the
economic damages associated to it.
• Might decrease Europe dependency on
foreign energy sources (Middle-East, Russia)
Conclusion
• The EU has the potential of becoming the
leading green economy.
• Short-term costs outweighed by long-term
profits.
• A significant step forward in the fight against
Global Warming.
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