Experience with Carbon Taxes and Greenhouse Gas Emissions Trading Systems

Carbon taxes and emissions trading systems (ETSs) to limit emissions of greenhouse gases (GHGs) are increasingly common. At the end of 2015, 17 GHG ETSs were operational in 55 jurisdictions, and 18 jurisdictions collected at least one carbon tax. This paper assesses the performance of carbon taxes and ETSs with respect to environmental effectiveness (reduction of emissions regulated by the instrument), cost-effectiveness (marginal abatement cost), economic efficiency, public finance, and administrative issues. Data on emissions subject to carbon taxes are rarely reported. We estimate the taxed emissions for 17 taxes in 12 jurisdictions from 1991 through the end of 2015. All 17 taxes have reduced emissions relative to business-as-usual. Six of the jurisdictions actually reduced emissions, although in at least three of those jurisdictions the reductions appear to be due to other policies. The small sizes of reduction in almost all 17 cases are partially due to the low tax rates; the modest and uncertain changes in tax rates over time; and the limited response of taxed sources, such as fossil fuels, to price changes. Actual emissions declined for at least six of 10 ETSs. Other policies and developments, such as the 2009 recession, contributed to the reductions, but estimates of the share of the reduction attributable to the instrument are rare. All of the ETSs have accumulated banks of surplus allowances and most have implemented measures to reduce these banks. On average, the marginal cost of compliance is substantially lower for ETSs than carbon taxes. ETS experience has been shared bilaterally and via dedicated institutions. As a result, most ETSs have increased the share of allowances auctioned; adopted declining emissions caps; specified future caps and floor prices several years into the future; shifted to benchmarking for free allowance allocations to emissions-intensive, trade-exposed (EITE) sources; reduced accessibility to foreign offset credits; and established market stability reserves. By contrast, there is little evidence of shared learning and virtually no change to the design of carbon taxes. We found no jurisdiction that routinely tracks the taxed emissions. Very few jurisdictions regularly assess the effectiveness of the tax in achieving emission reductions. Additionally, adjustments to the tax rate often are unpredictable after an introductory period of three to five years. Both instruments reduce emissions, but ETSs have performed better than carbon taxes on the principal criteria of environmental effectiveness and cost-effectiveness. Many jurisdictions have implemented both a carbon tax and a GHG ETS, and every jurisdiction that has adopted either instrument has also implemented other policies. More research is needed to improve the design of both instruments and their interaction with non-market-based carbon policies because the use of multiple instruments produces complex interactive and distributional effects. While economically inefficient, market-based policies should be supplemented by non-market-based policies to ensure sustained political support

The impact of the Tokyo Metropolitan Emissions Trading Scheme on reducing greenhouse gas emissions: findings from a facility-based study

<p>This paper provides a detailed analysis of the Tokyo Metropolitan Emissions Trading Scheme (Tokyo ETS), Japan’s first emissions trading scheme with mandatory cap initiated by the government of Tokyo. Unlike trading schemes in other countries, the Tokyo ETS covers indirect emissions from the commercial sector. It is well known that a variety of market barriers impede full realization of energy efficiency opportunities, especially in the commercial sector. Experiences with the Tokyo ETS should therefore provide important lessons for the design of climate change mitigation policies, especially when targeting the commercial sector. The emissions from covered entities have been drastically reduced from those at the scheme’s outset, with an average 14% reduction as of the end of the first commitment period of five years (2010–2014) compared with 2009 levels. This paper shows that the Tokyo ETS alone did not cause these reductions; there were other drivers. Among them, the energy savings triggered by the Great East Japan Earthquake in 2011 were crucial. The contribution of credit trading, in contrast, was limited since most of the covered entities reduced emissions by themselves. Through an investigation of official reports, an assessment of the emissions data from the covered entities compared to those of uncovered entities and in-depth interviews with firms covered by the scheme, this paper confirms that the main drivers of emissions reductions by covered entities were separate from the ETS. In fact, the advisory aspect of the scheme seems to be much more important in encouraging energy-saving actions.</p> <p><b>Key policy insights</b></p><p>Most of the observed emission reductions were not caused by the Tokyo ETS alone.</p><p>An advisory instrument was crucial to the effectiveness of the Tokyo ETS.</p><p>The experience of the Tokyo ETS suggests that making full use of the advantages of emissions trading is difficult in the case of the commercial sector.</p><p>Price signals have not provided a stimulus to climate change mitigation actions, which implies that establishing a cap to yield effective carbon prices poses a challenge.</p><p></p> <p>Most of the observed emission reductions were not caused by the Tokyo ETS alone.</p> <p>An advisory instrument was crucial to the effectiveness of the Tokyo ETS.</p> <p>The experience of the Tokyo ETS suggests that making full use of the advantages of emissions trading is difficult in the case of the commercial sector.</p> <p>Price signals have not provided a stimulus to climate change mitigation actions, which implies that establishing a cap to yield effective carbon prices poses a challenge.</p

Interim Report IR-99-057/November Demographic Trends and Household Saving in China

A key source of economic growth in China has been the abundance of household savings, especially in rural regions. In this paper, we estimate saving functions for urban and rural areas of China, paying particular attention to the role of demographic structure. Our results confirm other researchers&apos; finding that saving rates vary inversely with both the elderly and youth dependency ratios, but that the former effect is more significant. This suggests that prospective demographic trends in China will put downward pressure on household savings. Combining our estimation results with reasonable assumptions about economic growth and U.N. population projections, we predict that total household savings in China will begin to decline about 2025. A significant shortage of ex ante savings could develop as a result. These results confirm the results and reinforce the concerns expressed by Heller and Szymansky (1997) about the long-run prospect for savings in the East Asian region and possible impl..

LIFE-CYCLE CHANGES IN CONSUMPTION BEHAVIOR: AGE-SPECIFIC AND REGIONAL VARIATIONS

While research conducted over the last two decades has pointed to the important role played by household consumption in regional economic models, little attention has been directed to the consumption impacts associated not only with income changes, but also life-cycle changes. Using Japanese data, this paper explores some of the implications of life-cycle changes on consumption behavior using a modified AIDS (Almost Ideal Demand System) estimation system. Testing is directed to differences in age-specific consumption behavior and the potential differences in consumption by age and province. Copyright Blackwell Publishing, Inc. 2007

A review of industrial energy and climate policies in Japan and Sweden with emphasis towards SMEs

The threat of increased global warming resulting from the use of fossil fuels stresses decision-makers to formulate and adopt policies towards different sectors of the economy. In light of the great earthquake in Japan 2011, energy efficiency also plays an important role in meeting the challenge of power supply shortage. Energy policies towards industry are of particular importance as a major part of the energy in the economy is used in industrial production. The number of papers investigating and presenting experience from energy end-use policies are scarce. Furthermore, for those present, they often only include a very brief analysis. From a public point of view, evaluations of energy programs are of major importance to measure the performance of the programs. From an energy policy designer point of view, it is of major importance to not only see the cost-effectiveness of the policy but also to understand the fundamental mechanisms for the success or failure of an industrial energy program, in order to learn how to improve future programs. The aim of this paper is to present a review of energy end-use policy instrument in Japan and Sweden towards the industrial sector from 1990 to 2014, with special emphasis on industrial SMEs. From the results presented some general-conclusions can be made, (1) results show that the cost-effectiveness differs substantially between the evaluated programs, and (2) that from a governmental point of view, subsidies towards energy audit programs seem like the most cost-effective policy. In addition to this (3) the results from the review also stress the importance of a clear strategy for every energy program on how the program is going to be evaluated, ex-ante or ex-post, and how the performance of the program is to be measured. This structure should be included from the start of the program. (C) 2015 Elsevier Ltd. All rights reserved.Funding Agencies|Scholarship Foundation for Studies of Japanese Society; Environmental Policy Office; Industrial Science and Technology Policy and Environment Bureau of METI; Ministry of Economy, Trade and Industry of Japan; Swedish Energy Agency [35488-1]</p

Demographic Trends and Household Saving in China

A key source of economic growth in China has been the abundance of household savings, especially in rural regions. In this paper, we estimate saving functions for urban and rural areas of China, paying particular attention to the role of demographic structure. Our results confirm other researchers&apos; finding that saving rates vary inversely with both the elderly and youth dependency ratios, but that the former effect is more significant. This suggests that prospective demographic trends in China will put downward pressure on household savings. Combining our estimation results with reasonable assumptions about economic growth and U.N. population projections, we predict that total household savings in China will begin to decline about 2025. A significant shortage of ex ante savings could develop as a result. These results confirm the results and reinforce the concerns expressed by Heller and Szymansky (1997) about the long-run prospect for savings in the East Asian region and possible impl..

Experience with Carbon Taxes and Greenhouse Gas Emissions Trading Systems

Carbon taxes and emissions trading systems (ETSs) to limit emissions of greenhouse gases (GHGs) are increasingly common. At the end of 2015, 17 GHG ETSs were operational in 55 jurisdictions, and 18 jurisdictions collected at least one carbon tax. This paper assesses the performance of carbon taxes and ETSs with respect to environmental effectiveness (reduction of emissions regulated by the instrument), cost-effectiveness (marginal abatement cost), economic efficiency, public finance, and administrative issues. Data on emissions subject to carbon taxes are rarely reported. We estimate the taxed emissions for 17 taxes in 12 jurisdictions from 1991 through the end of 2015. All 17 taxes have reduced emissions relative to business-as-usual. Six of the jurisdictions actually reduced emissions, although in at least three of those jurisdictions the reductions appear to be due to other policies. The small sizes of reduction in almost all 17 cases are partially due to the low tax rates; the modest and uncertain changes in tax rates over time; and the limited response of taxed sources, such as fossil fuels, to price changes. Actual emissions declined for at least six of 10 ETSs. Other policies and developments, such as the 2009 recession, contributed to the reductions, but estimates of the share of the reduction attributable to the instrument are rare. All of the ETSs have accumulated banks of surplus allowances and most have implemented measures to reduce these banks. On average, the marginal cost of compliance is substantially lower for ETSs than carbon taxes. ETS experience has been shared bilaterally and via dedicated institutions. As a result, most ETSs have increased the share of allowances auctioned; adopted declining emissions caps; specified future caps and floor prices several years into the future; shifted to benchmarking for free allowance allocations to emissions-intensive, trade-exposed (EITE) sources; reduced accessibility to foreign offset credits; and established market stability reserves. By contrast, there is little evidence of shared learning and virtually no change to the design of carbon taxes. We found no jurisdiction that routinely tracks the taxed emissions. Very few jurisdictions regularly assess the effectiveness of the tax in achieving emission reductions. Additionally, adjustments to the tax rate often are unpredictable after an introductory period of three to five years. Both instruments reduce emissions, but ETSs have performed better than carbon taxes on the principal criteria of environmental effectiveness and cost-effectiveness. Many jurisdictions have implemented both a carbon tax and a GHG ETS, and every jurisdiction that has adopted either instrument has also implemented other policies. More research is needed to improve the design of both instruments and their interaction with non-market-based carbon policies because the use of multiple instruments produces complex interactive and distributional effects. While economically inefficient, market-based policies should be supplemented by non-market-based policies to ensure sustained political support