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The Pricing of Carbon Emissions from the Business Perspective in Northeast Asia

The Pricing of Carbon Emissions from the Business Perspective in Northeast Asia. May 27, 2013 Presenter: Xianbing LIU Senior Policy Researcher Kansai Research Centre/IGES, Japan. Background: The Project on MBIs (Market-based Instruments).

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The Pricing of Carbon Emissions from the Business Perspective in Northeast Asia

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  1. The Pricing of Carbon Emissions from the Business Perspective in Northeast Asia May 27, 2013 Presenter: Xianbing LIU Senior Policy Researcher Kansai Research Centre/IGES, Japan

  2. Background:The Project on MBIs (Market-based Instruments) Basic thinking:a) Advantages of MBIs; b) Importance of clear and stable policy signals; c) Successful MBIs practices in Europe; d) Laggard policy progress in Asia; e) Core competence of IGES; f) Research field of KRC Geographical focus:Japan, China and the Republic of Korea Policy focus: Financial subsidies, carbon taxes and GHG emissions trading schemes Discussed in this presentation Overall objective: To support the related policy discussions from the business viewpoints in this region Shanghai Forum 2013

  3. Climate Policies in the Three Countries Shanghai Forum 2013

  4. Objectives of the Surveys in FY2011 • Monitor the company’s awareness and overall acceptability of energy • saving and climate policies, particularly the economic instruments; • 2) Estimate the company’s affordable carbon prices using the model of • willingness-to-pay (WTP) and MBDC format; • 3) Understand the barriers for the company’s energy saving investments • and responses to the emerging carbon pricing policies. • The surveys in China and Korea were conducted in FY2011. The survey • in Japan was arranged in FY2012 as a complementary one under the • MBIs project of KRC/IGES in the 5th phase (FY2010-2012). Shanghai Forum 2013

  5. Main Items:◈ Basic information of the firms;◈ Firm’s energy use status;◈ MBDC format on the left;◈ Factors affecting firm’s cost affordability and policy awareness;◈ Awareness of policies and energy saving technologies;◈ Factors affecting firm’s decisions in energy saving investments;◈ Firm’s reactions to possible policy interventions;◈ Pay back time for energy saving investments;◈ Etc. MBDC Card for Model Estimations & Survey Items Five levels of acceptance 15 increase options in Energy costs Shanghai Forum 2013

  6. Estimation Models for Individual Companies Mean value of Vi Affordable energy cost increase ratio, with a CDF F(r) Possibility for accept an increase threshold, rij An error term with a mean of zero Assumed a normal accumulative distribution with a mean of μi and a standard variance of σi A vector of determinant factors Shanghai Forum 2013

  7. The Survey Areas in China Shanxi Province: 79 34 samples from other areas Shandong Province: 57 Shanghai Forum 2013

  8. Distribution of Respondents in China 3 energy-intensive sectors mainly targeted in this survey Shanghai Forum 2013

  9. Distribution of Samples in Korea Shanghai Forum 2013

  10. The Survey Area in Japan ► Posted to all the 465 manufacturing companies with annual energy use over 1,500kl TOE; ►117 are members of Hyogo Environmental Protection Association; ► 348 are posted with the letter of Hyogo government; ► 72 association members responded; ►158 collected with the letter of Hyogo government; ►A total of 230 valid samples gathered. Shanghai Forum 2013

  11. Distribution of Respondents in Hyogo, Japan Shanghai Forum 2013

  12. Company’s Energy Use Structure in China 32% 62% 62% Shanghai Forum 2013

  13. Energy Cost Ratios in Total Sales of Chinese Samples For large and medium firms: 20-30% of energy cost in production cost. Shanghai Forum 2013

  14. Energy Use Structure of the Samples in Japan 73.9% 11.3% 43.2% 33.8% 49.7% 26% Shanghai Forum 2013

  15. Affordability of the Samples in China (N=111) Two curves were simulated:One is the sum of easily acceptable + acceptable. The other is the sum of easily acceptable + acceptable + barely acceptable. The real affordable ratio shall be between these two curves. 50% of the samples corresponds to the ratios of 2.8% and 9.3% on the two curves. Shanghai Forum 2013

  16. Affordability of Steel Companies in China (N=34) 50% of the samples corresponds to the ratios of 2.6% and 9.3% on the two curves. Shanghai Forum 2013

  17. Affordability of All the Samples in Japan (N=153) 50% of the samples corresponds to the ratios of 0.6% and 3.2% on the two curves. Shanghai Forum 2013

  18. Affordability of All the Samples in Korea (N=36) The R squared for regressions of the two sets of data is 0.9565 and 0.9721. Affordability on the part of 50% of the samples corresponds to energy cost increase ratios of0.6% and 2.3%. Shanghai Forum 2013

  19. Distribution of Cost Affordability in China ◈ Significantly and negatively associated with competition level; ◈The large companies have higher affordability. Shanghai Forum 2013

  20. Calculations of Affordable Carbon Prices in China Shanghai Forum 2013

  21. Distribution of Cost Affordability in Japan In addition: Iron & steel sector (N=11): Mean of μ: 1.5% Mean of std. dev. of μ: 3.1%. Electronics sector (N=12): Mean of μ: 2.6% Mean of std. dev. of μ: 3.7%. Shanghai Forum 2013

  22. Carbon Prices Affordable for Companies in Hyogo 5-13$/t-CO2 Big gap with the carbon price needed for realizing Copenhagen pledge of Japan (30-50$/t-CO2) Shanghai Forum 2013

  23. Distribution of Cost Affordability in Korea *: Lower (upper) confidence limit held at minimum (maximum) of sample. Shanghai Forum 2013

  24. Carbon Prices Affordable for Korean Companies Kwon and Heo (2010): 36,545KRW/t-CO2 (about 31$/t-CO2) for achieving the national mid-term target of Korea. KIFP (Korea Institute of Public Finance)(2008): 25EURO/t-CO2 and equivalent to 31,328KRW/ t-CO2 KIFP (2010): Suggested a carbon tax rate at the level of 1/8of above in the first proposal. Shanghai Forum 2013

  25. A Brief Summary ◆ This presentation summarizes the estimation results of carbon prices affordable for the companies in China, Japan and Korea; ◆ The MBDC format and WTP model, traditionally used for the individuals, were innovatively applied; ◆ The sampled Chinese companies show relatively higher affordability to energy cost increases than the companies of Japan and Korea; ◆ The carbon prices affordable for the companies in China and Japan are similar at a range of 5-13$/t-CO2, which is around 2-3 times of Korean companies; ◆ The estimated affordable carbon prices are meaningful for the ongoing discussions of carbon pricing policies in this region; ◆ Besides carbon prices, the viewpoints of businesses on the other policy attributes shall be measured for the design of appropriate carbon pricing tools; ◆ The policy gap for the realization of national carbon mitigation targets in medium and long term shall be further identified and bridged; ◆ The possibility for policy integration and coordination at regional level is an essential topic for discussions. Shanghai Forum 2013

  26. Thank you! Contacts: Xianbing LIU KRC/IGES Tel: +81-78-262-6634 Fax: +81-78-262-6635 E-Mail: liu@iges.or.jp URL: http://www.iges.or.jp Shanghai Forum 2013

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