Showing papers by "Christoph Böhringer published in 2014"

Two Decades of European Climate Policy: A Critical Appraisal

Abstract: Climate change ranks high on the policy agenda of the European Union (EU), which considers itself a leading force in the battle against anthropogenic climate change. The EU is committed to ...

Vertical Fiscal Externalities and the Environment

Abstract: We show that the imposition of a state-level environmental tax in a federation crowds outs pre-existing federal taxes. We explain how this vertical fiscal externality can lead unilateral state-level environmental policy to generate a welfare gain in the implementing state, at the expense of other states. Using a computable general equilibrium model of the Canadian federation, we show that vertical fiscal externalities can be the major determinant of the welfare change following environmental policy implementation by a state government. Our numerical simulations indicate that -- as a consequence of vertical fiscal externalities -- state governments can reduce greenhouse gas emissions by over 20 percent without any net cost to themselves.

The Impacts of Feed-in Tariffs on Innovation: Empirical Evidence from Germany

Abstract: Feed-in tariffs under the Renewable Energy Sources Act, the so-called Erneuerbare-Energien-Gesetz (EEG), have triggered a massive expansion of electricity from renewable energy sources in Germany over the last decade. The increase in non-competitive renewable power generation though went hand in hand with a substantial rise in electricity prices with consumers paying for the renewable energy subsidies. The high cost burden has provoked an intense public debate on the benefits of renewable energy promotion. In this paper, we assess one popular justification for feed-in tariffs, i.e., induced innovation as a positive spillover externality. Based on regressions with a time-technology fixed effects negative binomial model, we find that innovation impacts of feed-in tariffs under the EEG are insignificant.

Environmental tax reforms in Switzerland a computable general Equilibrium impact analysis

Abstract: The Swiss energy strategy until 2050 envisages ambitious CO2 emission reduction targets along with substantial cutbacks in electricity consumption to establish a low-carbon economy without nuclear energy. Our computable general equilibrium analysis finds that compliance with stringent CO2 constraints requires high CO2 taxes on economic activities which are not eligible for international emissions trading; likewise, electricity consumers are burdened with substantial electricity taxes. Environmental tax reforms are not likely to generate welfare gains without accounting for the benefits of improved environmental quality. However, economic adjustment costs to a low carbon economy without nuclear energy remain modest and can be markedly reduced through revenue-neutral cuts of initial distortionary taxes. On the other hand, alternative recycling strategies pose a trade-off between efficiency and distributional justice which has to be resolved on normative grounds.

Sharing the Burden for Climate Change Mitigation in the Canadian Federation

Abstract: Dividing the burden for greenhouse gas abatement amongst the provinces has proven challenging in Canada, and is a major factor contributing to Canada's poor historic performance on greenhouse gas abatement. As the country aims to achieve substantial cuts to emissions over the next decade and by mid-century, such burden sharing considerations are likely to be elevated in importance. This paper uses a calibrated multi-region multi-sector computable general equilibrium model to compare a number of archetypal rules for sharing the burden of a joint commitment amongst members for the case of greenhouse gas reductions in Canada. Because of the substantial heterogeneity amongst Canadian provinces, these different burden sharing rules imply signifcantly different relative abatement effort amongst provinces, and also signifcantly different welfare implications. When emission permits are allocated on an equal per capita basis, welfare is increased in Ontario, British Columbia, Quebec, and Manitoba, and signifcantly reduced in Alberta and Saskatchewan. In contrast, when emission permits are allocated based on historic emissions, Alberta and Saskatchewan are made better off, and Ontario, British Columbia, Quebec, and Manitoba are made worse off. We compare these archetypal burden sharing rules to existing provincial emission reduction commitments, and find that none of the standard burden sharing rules comes close to existing commitments. We argue that the debate on burden sharing of greenhouse gas abatement in Canada could be objectified if informed by coherent quantitative analysis such as the one presented here.

Unilateral Climate Policy: Can OPEC Resolve the Leakage Problem?

Abstract: In the abscence of a global agreement to reduce greenhouse gas emissions, individual countries have introduced national climate policies. Unilateral action involves the risk of relocating emissions to regions without climate regulations, i.e., emission leakage. A major channel for leakage are price changes in the international oil market. Previous studies on leakage have assumed competitive behaviour in this market. Here, we consider alternative assumptions about OPEC’s behaviour in order to assess how these affect leakage and costs of unilateral climate policies. Our results based on simulations with a large-scale computable general equilibrium model of the global economy suggest that assumptions on OPEC’s behaviour are crucial to the impact assessment of unilateral climate policy measures. We find that leakage through the oil market may become negative when OPEC is perceived as a dominant producer, thereby reducing overall leakage drastically compared to a setting where the oil market is perceived competitive.

Sharing the Burden for Climate Change Mitigation in the Canadian Federation

Abstract: Dividing the burden for greenhouse gas abatement amongst the provinces has proven challenging in Canada, and is a major factor contributing to Canada’s poor historic performance on greenhouse gas abatement. As the country aims to achieve substantial cuts to emissions over the next decade and by mid-century, such burden sharing considerations are likely to be elevated in importance. This paper uses a detailed Canadian computable general equilibrium model to compare a number of archetypal rules for sharing the burden of a joint commitment amongst members for the case of greenhouse gas reductions in Canada. Because of the substantial heterogeneity amongst Canadian provinces, these different burden sharing rules imply significantly different relative abatement effort amongst provinces, and also significantly different welfare implications. We compare these archetypal burden sharing rules to existing provincial emission reduction commitments, and find that none of the standard burden sharing rules comes close to existing commitments. We argue that future efforts to share the burden of greenhouse gas abatement in Canada would be more successful if they were informed by a formal analysis such as the one presented here.

The environmental implications of Russia's accession to the world trade organization

Abstract: This report investigates the environmental impacts of Russia's accession to the World Trade Organization. A 10-region, 30-sector model of the Russian economy is developed. The model is innovative and more accurate empirically in that it contains foreign direct investment, imperfectly competitive sectors, and endogenous productivity effects triggered by World Trade Organization accession along with environmental emissions data in Russia for seven pollutants that are tracked for all 30 sectors in each of the 10 regions. The decomposition analysis shows that despite the fact that World Trade Organization accession allows Russia to import better technologies and reduce pollution from the"technique effect,"on balance World Trade Organization accession alone will increase environmental pollution in Russia through a shift toward dirty industries (the"composition effect") and the expansion of output with its associated increase in pollution ("scale effect"). The paper assesses the costs of three types of environmental regulations to reduce carbon dioxide emissions by 20 percent. The paper simultaneously implements a central case scenario with each of the carbon dioxide emission reduction policy initiatives. The analysis finds that the welfare gains of World Trade Organization accession are large enough to pay for the costs of any of the three environmental abatement policies, while leaving a net welfare gain. But the political economy implications are that the non-market-based policies are more costly and the command and control policy, which is not well targeted, is very costly. Based on a constant returns to scale model, the estimated welfare gains are insufficient to finance the costs of environmental regulation.

The Impacts of Feed-in Tariffs on Innovation: Empirical Evidence from Germany

Abstract: Feed-in tariffs under the Renewable Energy Sources Act, the so-called Erneuerbare-Energien-Gesetz (EEG), have triggered a massive expansion of electricity from renewable energy sources in Germany over the last decade. The increase in non-competitive renewable power generation though went hand in hand with a substantial rise in electricity prices with consumers paying for the renewable energy subsidies. The high cost burden has provoked an intense public debate on the benefits of renewable energy promotion. In this paper, we assess one popular justification for feed-in tariffs, i.e., induced innovation as a positive spillover externality. Based on regressions with a time-technology fixed effect negative binomial model, we find that innovation impacts of feed-in tariffs under the EEG are insignificant.

Output-based rebating of carbon taxes in the neighbors backyard

Abstract: We investigate how carbon taxes combined with output-based rebating (OBR) in an open economy perform in interaction with the carbon policies of a large neighboring trading partner. Analytical results suggest that whether the purpose of the OBR policy is to compensate firms for carbon tax burdens or to maximize welfare (accounting for global emission reductions), the second-best OBR rate should be positive in most cases. Further, it should fall with the introduction of carbon taxation in the neighboring country, particularly if the neighbor refrains from OBR. Numerical simulations for Canada with the US as the neighboring trading partner, indicates that the impact of US policies on the second-best OBR rate will depend crucially on the purpose of the domestic OBR policies. If the aim is to restore the competitiveness of domestic emission-intensive, trade exposed (EITE) firms at the same level as before the introduction of its own carbon taxation for a given US carbon policy, we find that the domestic optimal OBR rates are relatively insensitive to the foreign carbon policies. If the aim is to compensate the firms for actions taken by the US following a Canadian carbon tax, the necessary domestic OBR rates will be lower if also the US regulates its emissions, particularly if the US refrains from OBR. If the goal is rather to increase the efficiency of Canadian policies in an economy-wide sense by accounting for carbon leakage, the US policies have but a minor reducing impact on domestic optimal OBR rates.

The Environmental Implications of Russia's Accession to the World Trade Organization

Abstract: This report investigates the environmental impacts of Russia's accession to the World Trade Organization. A 10-region, 30-sector model of the Russian economy is developed. The model is innovative and more accurate empirically in that it contains foreign direct investment, imperfectly competitive sectors, and endogenous productivity effects triggered by World Trade Organization accession along with environmental emissions data in Russia for seven pollutants that are tracked for all 30 sectors in each of the 10 regions. The decomposition analysis shows that despite the fact that World Trade Organization accession allows Russia to import better technologies and reduce pollution from the "technique effect," on balance World Trade Organization accession alone will increase environmental pollution in Russia through a shift toward dirty industries (the "composition effect") and the expansion of output with its associated increase in pollution ("scale effect"). The paper assesses the costs of three types of environmental regulations to reduce carbon dioxide emissions by 20 percent. The paper simultaneously implements a central case scenario with each of the carbon dioxide emission reduction policy initiatives. The analysis finds that the welfare gains of World Trade Organization accession are large enough to pay for the costs of any of the three environmental abatement policies, while leaving a net welfare gain. But the political economy implications are that the non-market-based policies are more costly and the command and control policy, which is not well targeted, is very costly. Based on a constant returns to scale model, the estimated welfare gains are insufficient to finance the costs of environmental regulation.

Trade in carbon and the effectiveness of carbon tariffs

Abstract: In the absence of a global agreement to reduce CO2 emissions single countries or regions have introduced subglobal climate policies. One major challenge associated with unilateral action is carbon leakage, i.e., the relocation of emissions from regulated to unregulated regions. A principal measure to combat carbon leakage is carbon tariffs, where embodied emissions in imports are taxed at the domestic CO2 price when crossing the border. Using combined MRIO and computable general equilibrium (CGE) analysis for the years from 1995 to 2007 based on data provided by World Input-Output Database (WIOD), we assess the potential of carbon tariffs as a means of improving the global cost-effectiveness of unilateral emission pricing. Our MRIO analysis shows increasing relevance of embodied carbon in trade. Both imports of embodied carbon in OECD countries and exports of embodied carbon from developing countries have increased substantially. However, our CGE policy simulations suggest that the effectiveness of carbon tariffs does not increase over time but the burden shifting potential from OECD to Non-OECD countries increases.

Output-Based Rebating and Competitiveness: Optimal Unilateral Carbon Policies When Playing with Others

Abstract: We investigate how carbon taxes combined with second-best output-based rebating (OBR) in an open economy perform in interaction with the carbon policies of a large trading partner. Analytical results suggest that whether the purpose of the OBR policy is to compensate firms for carbon tax burdens or to maximise welfare, the OBR rate should be positive in most cases and fall with the introduction of carbon taxation in the neighbouring country, particularly if the neighbour refrain from OBR. Numerical simulations for Canada with the US as the neighbouring trading partner, indicates that the impact of US policies will depend crucially on the purpose of the domestic OBR policies. If the aim is to restore the competitiveness of domestic EITE firms at the same level as before the introduction of own carbon taxation, more or less the same Canadian OBR system will be required irrespective of the US carbon policy regime. If the target is to compensate the firms also for actions taken by the US, the necessary domestic OBR rates will be lower if the US regulates its emissions, particularly if the US refrains from OBR. If the goal is rather to increase the efficiency of Canadian policies in an economy-wide sense, the US policies have but a minor reducing impact on optimal OBR rates.