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GTAP_E

GTAP_E. Presented by Belay Fekadu, Farzad Taheripour, Patrick Georges, David Mayer-Foulkes, Marianne Aasen, Hyun-Sik Chung, Kenatro Katsumata, Christa Clapp. Presentation Outline. Annex 1 without USA. Emissions targets. Energy Substitution Possibilities.

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GTAP_E

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  1. GTAP_E Presented by Belay Fekadu, Farzad Taheripour, Patrick Georges, David Mayer-Foulkes, Marianne Aasen, Hyun-Sik Chung, Kenatro Katsumata, Christa Clapp

  2. Presentation Outline

  3. Annex 1 without USA

  4. Emissions targets

  5. Energy Substitution Possibilities • Aim of experiment: Examine the effect of higher elasticity of substitution between capital and energy under carbon emission quotas • Base Case: Kyoto Protocol with emission trading among Annex 1 countries • Annex 1 countries (USA, EU, Japan, Rest of Annex 1) have carbon emission quotas following 1st commitment period of Kyoto Protocol • Annex 1 countries are allowed to trade carbon emission permits freely • Annex 1 countries are allowed to purchase emission permits from EEFSU • σKE for energy-intensive industry sector in all regions = 0.5 • Experiment: Builds on Reference Case with increased elasticity of substitution between capital and energy in the energy-intensive industry sector • Increase ELKE parameter (σKE) for energy-intensive industry sector in all regions to 5.0

  6. Energy Substitution Possibilities Capital-Energy subproduct sKE Energy subproduct Capital sEN Non-electrical Electrical sNEL Non-coal Coal sNCOAL Gas Oil Petroleum products

  7. Energy Substitution Possibilities Carbon Permit Price & Carbon emissions • Annex 1 regions: • In Experiment, firms are able to substitute away from carbon-intensive energy towards capital • This makes it easier to meet carbon emission quotas & results in lower carbon permit price • Results in less emission reductions than in Base Case due to trading with EEFSU • EEFSU: • Annex 1 countries purchase more carbon reductions in EEFSU in Experiment because emission reductions are even cheaper with less energy use in EEFSU • Outside Annex 1: • In Experiment, firms will substitute towards energy since it is relatively cheaper than capital • Because they do not have carbon quotas, emissions increase

  8. Energy Substitution Possibilities Demand for Capital and Energy • Annex 1: • In Experiment, firms are able to substitute away from carbon-intensive energy towards capital • Results in higher demand for capital, lower demand for energy • EEFSU: • Same story as Annex 1, because of carbon trading bloc (Annex 1 purchases cheaper reductions in EEFSU) • Non-Annex 1: • In Experiment, firms will substitute towards energy because it is relatively cheaper than capital

  9. Energy Substitution Possibilities • For Annex 1: Welfare is decreased less with greater σKE in energy-intensive industries • For EEFSU: Welfare is lower in Experiment , because it receives less payment for carbon permits • For non-Annex 1: welfare is generally better in the Experiment, although for EEx it is still negative

  10. Energy Substitution Possibilities Conclusions • Capital–Energy substitution can have an important impact on production input choices, and thus can impact carbon emissions, carbon permit prices, and welfare • Impacts of Capital-Energy substitution are largely affected by whether a region is subject to a carbon quota

  11. Tax Replacement Implications

  12. Concluding Comments • Complex interactions between energy, emissions & economy • Policy choices & design have economic implications: • Choice of environmental policy instrument (carbon tax vs. carbon emission quotas) impacts welfare, terms of trad • Level of emission quotas and allocation (historical emissions, emissions/output, emissions/capita) impact welfare • Participation in climate treaties (U.S., developing countries) impacts emissions and trade leakage, i.e. movement of energy-intensive industries towards regions that are outside of the carbon quota area • Technology (energy-efficiency, capital turnover) has economic implications: • Capital-Energy substitution impacts production choices (either towards energy or towards capital), carbon permit prices, welfare

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