Emission pricing and CO2 compensation in the EU. The optimal compensation to the power-intensive and trade-exposed industries for increased electricity prices

Unilateral CO2 emission reduction can lead to carbon leakage, such as relocation of power-intensive and trade-exposed industries. In the EU emission trading system, these industries are also subjected to higher cost of electricity due to emission pricing in this sector. As a result, the industries in the EU receive free emission allowances to mitigate carbon leakage as well as CO2 compensation due to higher electricity cost. This paper examines the welfare effects of supplementing free allowances with a CO2 compensation on the power-intensive and trade-exposed goods. The analytical results suggest that introducing CO2 compensation has a regional and global welfare improving effect under certain plausible conditions. Numerical simulations in the context of the EU ETS support the analytical findings if the emission reduction target is stringent enough

Green technology policies versus carbon pricing: An intergenerational perspective

Technology policy is the most widespread form of climate policy and is often preferred over seemingly efficient carbon pricing. We propose a new explanation for this observation: gains that predominantly accrue to households with large capital assets and that influence majority decisions in favor of technology policy. We study climate policy choices in an overlapping generations model with heterogeneous energy technologies and distortionary income taxation. Compared to carbon pricing, green technology policy leads to a pronounced capital subsidy effect that benefits most of the current generations but burdens future generations. Based on majority voting which disregards future generations, green technology policies are favored over a carbon tax. Smart “polluter-pays” financing of green technology policies enables obtaining the support of current generations while realizing efficiency gains for future generations

Deep Integration in Eastern and Southern Africa: What are the Stakes?

Evidence indicates that trade costs are a much more substantial barrier to trade than tariffs, especially in sub-Saharan Africa. We decompose trade costs into (a) trade facilitation; (b) non-tariff barriers and (c) the costs of business services. We develop a conceptually innovative model and new dataset to assess deep integration to reduce these three types of trade costs in the East African Community, the Common Market of East and Southern Africa and South African Development Community (EAC-COMESA-SADC) ‘Tripartite' Free Trade Area (FTA), within the EAC alone and unilaterally by the EAC. We find that there are substantial gains for all six of our African regions from deep integration in the Tripartite FTA or comparable unilateral reforms by the EAC; but the estimated gains vary considerably across countries and depend on the reform. Thus, countries would have an interest in negotiating for different reforms in different agreements. Tariff removal in the Tripartite FTA would produce only small losses or gains, depending on the country. Interestingly, we estimate that Kenya gains less from comparable unilateral liberalisation by the EAC than from the Tripartite FTA, due in part to an umbrella of protection in services markets in the Tripartite regio

Optimal environmental border adjustments under the General Agreement on Tariffs and Trade

A country choosing to adopt border carbon adjustments based on embodied emissions is motivated by both environmental and strategic incentives. We argue that the strategic component is inconsistent with commitments under the General Agreement on Tariffs and Trade (GATT). We extend the theory of border adjustments to neutralize the strategic incentive, and consider the remaining environmental incentive in a simplified structure. The theory supports border adjustments on carbon content that are below the domestic carbon price, because price signals sent through border adjustments inadvertently encourage consumption of emissions intensive goods in unregulated regions. The theoretic intuition is supported in our applied numeric simulations. Countries imposing border adjustments at the domestic carbon price will be extracting rents from unregulated regions at the expense of efficient environmental policy and consistency with international trade law

El impacto económico del Brexit en España

La Secretaría de Estado de Comercio encargó un estudio que analizara en profundidad los posibles efectos del Brexit en la economía española. Para ello, los autores utilizaron un modelo de equilibrio general computable capaz de capturar los impactos directos e indirectos del Brexit sobre un amplio número de sectores productivos de bienes y servicios. Ante el elevado nivel de incertidumbre sobre el acuerdo, se consideraron cuatro escenarios distintos. En todos ellos, el Brexit tendría consecuencias negativas para el PIB y el empleo en España, así como para el comercio y la inversión extranjera directa que la economía española emite y recibe. La salida del Reino Unido supondrá la aparición de trabas a los flujos tanto comerciales como de inversión directa, de mayor o menor intensidad según el escenario contemplado, y tendrá efectos negativos sobre las principales variables económicas. La caída del PIB oscilaría entre el -0,64%, en el escenario más negativo de salida sin acuerdo, y el -0,32%, en un Brexit blando. El estudio destaca que el impacto del Brexit vendría explicado fundamentalmente por el aumento previsto de las barreras no arancelarias y de las barreras a la inversión directa, mientras que el efecto de las barreras arancelarias sería menor. Cabe señalar que los resultados a los que llega el estudio son consistentes con las estimaciones de otros estudios previos. La contracción que experimentaría la economía española sería similar a la del resto de la Unión Europea, pero, muy inferior a la que se produciría en el Reino Unido, que perdería su acceso preferente a un enorme mercado. El estudio muestra que el impacto del Brexit sobre los distintos sectores de actividad sería heterogéneo y algunos sectores concretos sufrirían un shock más intenso. El análisis cuantifica el impacto sobre producción, exportaciones e importaciones de 22 sectores. Al interpretar los resultados, es importante tener en cuenta que las cifras del estudio son una buena aproximación al impacto previsible, pero deben ser tomadas con cautela, especialmente al nivel más desagregado, ya que todo modelo se apoya en supuestos que simplifican notablemente la realidad económica. Las estimaciones de este estudio se realizaron en febrero de 2020, antes de que se conociera el elevado impacto económico de la COVID-19. Sus resultados continúan, en general, siendo válidos, pero perderían validez si la actual crisis provoca cambios significativos y duraderos en nuestra estructura económica y nuestros flujos comerciales y de inversión

Stopped TTIP? Its potential impact on the world and the role of neglected FDI

The Transatlantic Trade and Investment Partnership (TTIP) seems to be a doomed half-negotiated trade deal with Donald Trump in power. If it were definitely abandoned, the effects of what could have been the largest trade agreement in history would disappear. In this paper we analyze its potential impact on the world and on insiders and outsiders of the agreement using a Computable General Equilibrium (CGE) model. In our simulation, TTIP consists of reductions of tariffs, non-tariff barriers and a previously neglected component, namely, barriers to Foreign Direct Investment (FDI). The impact of the FDI component would be larger for the US than for the EU. In the US, it would contribute to nearly half of the overall impact of TTIP, while in the EU it would be nearly one third. Insiders would heavily benefit from TTIP but the effects could potentially be very slightly negative for outsiders (Middle East, Sub-Saharan Africa, Latin America, Southeast Asia and Other Advanced Countries), with the exception of the big Asian economies (China, Japan and India). The latter would remain unaffected. However, all the slightly potential negative effects would turn into positive with an “inclusive TTIP” (i.e., one avoiding third country discriminating rules and standards). An inclusive TTIP would benefit both insiders, who would gain more, and outsiders, who would be better off than without the TTIP. Welfare, GDP, wages, as well as aggregate imports and exports of the world economy would clearly increase following either a shallow or a deep TTIP agreement

Politikk på politikk – derfor koster klimapolitikken

Norge har ambisiøse mål i klimapolitikken for ikke-kvotepliktig sektor. Kuttene kan gjennomføres billigst mulig ved å stille alle utslippskildene overfor samme utslippspris. Imidlertid oppstår en stor del av de samfunnsøkonomiske kostnadene ved at utslippsprisen som må til på uheldig vis samspiller med andre skattepolitiske inngrep. Særlig har arbeidsbeskatningen og elbilstøtten stor innvirkning. Å kombinere økt utslippspris med reduksjon i arbeidsbeskatningen og elbilstøtten vil gjøre klimapolitikken mindre kostnadskrevende for samfunnet som helhet.publishedVersio

Effects of changes in electricity prices on the power-intensive industries and other sectors in Norway towards 2030

I denne studien studerer vi effektene av ulike fremtidige elektrisitetspriser på den kraftkrevende industriens produksjon, sysselsetting, investeringer og handel i perioden 2020-2030. Vi bruker SSBs SNOW-modell, en generell likevektsmodell for norsk økonomi. Resultatene våre viser at produksjonen i sektorene Ikke-jernholdige metaller (aluminium) og Jern og stål i stor grad blir påvirket av endringer i framtidige strømpriser. I vårt høyprisscenario er de norske og europeiske strømprisene rundt 50 prosent høyere enn referansestrømprisen i 2030. Dette fører til en reduksjon i akkumulert produksjon fra 2020 til 2030 på 36-40 prosent i Ikke-jernholdige metaller og 32-33 prosent i Jern og stål sammenlignet med situasjonen med en referansestrømpris. Hovedårsaken til at nedgangen er større i Ikke-jernholdige metaller enn Jern og stål er at denne sektoren er mer kraftkrevende. I vårt lavprisscenario faller både den norske og den europeiske strømprisen slik at prisen er rundt 40 prosent lavere i 2030 sammenlignet med referansestrømprisen. Forutsatt at vi ikke har noen effektivitetsforbedringer i strømbruken over tid når elektrisitetsprisen er lav, vil den samlede produksjonen i løpet av det neste tiåret øke med henholdsvis 52 prosent og 36 prosent i Ikke-jernholdige metaller og Jern og stål, sammenlignet med referansepris-scenariet. Fordi Jern og stål er mindre kraftkrevende enn Ikke-jernholdige metaller, vil de tjene relativt mindre på lavere strømpriser. Videre viser vi at for begge sektorene følger de relative effektene av strømprisene på eksport, CO2-utslipp og sysselsetting i stor grad samme mønster over tid som virkningene på produksjonen