What would be the effects on the European Union economy of new policies to cut CO 2 emission?

1. What would be the effects on the European Union economy of new policies to cut CO2 emission? Mathias Mortensen Santiago Nuñez Silva Sean Stevens WilfriedGenest

2. Plan of presentation • Why does the EU need to cut CO2 emissions? • A case study of a CO2 emission reduction policy • Aims • Actions taken • Results and Costs c) The Copenhagen agreement • Aims • Policy proposed • Possible effects on the European economy d) Conclusion.

4. Why does the EU need to cut CO2 emissions?

5. Kyoto protocol • Europe is supposed to reduce its annual CO2 emissions by 8% (compared to 1990) by 2012. • In 2007, the CO2 emissions were 5% smaller than in 1990. • In 2008, 6.2% smaller. • By 2012, 13% smaller (estimation from EEA).

6. Territory size in proportion to annual CO2 emissions 13.5% of world annual CO2 emissions...

7. Cumulative Carbon Emissions 1900-1999 …but 27.7% of CO2 emissions since 1900.

9. Existing Measures: a brief case study

10. Aims: reduce car CO2 emissions • 2007 reduction goals • Reduce car emissions to 120g/Km by 2012 • Road Transport makes up for 20% of the total EU CO2 emissions • Passenger cars make up for 12%

11. Repartition by economic sectors • Energy industries 1577.4 tonnes • Transport 968.8 tonnes • Industry 944.7 tonnes • Household 468.6 tonnes • Services 185.3 tonnes • Other 112.8 tonnes

12. Actions taken Three main pillars - Pressure on European, Japanese and Korean car makers to reduce CO2 from their new cars sold in the EU to 140g/km by 2008. • EU directives require the display of labels indicating CO2 emissions on new cars sold. - Fiscal policies (tax breaks and extra taxes)

13. Results and Costs • Cost the manufacturer 1700€ more per vehicle (due to higher investments). • This leads to an increase of 2450€ for consumers. • Target not yet achieved. Average emission is currently 140g/Km.

15. The Copenhagen agreement: new aims.

16. (to be filled when conference ends around the 18th of Dec.)

17. Policy proposed Subsidies, cap-and-trade, tariffs...

18. More subsidies? Supply Market for green energy industry Supply + subsidies P1 Average price of green energy (€) P2 Demand Q1 Q2 Quantity of green energy demanded/supplied (million of tons)

19. More cap-and-trade? • Each industry is allowed to emit a certain level of CO2, these “permits to pollute” can then be sold to and bought from other companies.

20. A CO2 tariff? Market for industrial goods Domestic supply Average price of industrial goods (€) Domestic demand 0 Quantity of industrial goods demanded/supplied (million of tons)

21. A CO2 tariff? Market for industrial goods Domestic supply Average price of industrial goods (€) World Supply World Price Imports Domestic demand 0 Qsupplied Qdemanded Quantity of industrial goods demanded/supplied (million of tons)

22. A CO2 tariff? Market for industrial goods Domestic supply World Price + CO2 tariff Average price of industrial goods (€) World Supply + tariff World Price World Supply Imports Domestic demand 0 Qsupplied Qdemanded Quantity of industrial goods demanded/supplied (million of tons)

23. A CO2 tariff? Market for industrial goods Domestic supply World Price + CO2 tariff Average price of industrial goods (€) World Supply + tariff New (lower) Imports levels Domestic demand 0 Qsupplied Qdemanded Quantity of industrial goods demanded/supplied (million of tons)

25. Disadvantages?

26. Emissions trade agreement • (2005-2007) Too many permits were allocated making them worthless in values • (2007-2009) Burden moved to consumers. Recession led to lower CO2 emissions. Hence there were still too many permits on the allocation market.

27. Cost to Europe • Unequal share of the environmental burdens between national energy suppliers (Western countries already have “greener” energy ). • Investments could reach as high as 1 trillion €. • Industrial products will increase in prices which will make them uncompetitive (main export of EU being machinery). • Could lead to inflation as prices of good will increase.

28. Higher standards? Supply + rigid environmental standards Market for machinery Supply P2 Average price of machinery (€) P1 Demand Q2 Q1 Quantity of machinery demanded/supplied (million of tons)

29. Weakening Europe • Disagreements upon targets for Copenhagen’s conference- poorer EU countries do not want to pay for the poor countries outside the EU. • Europe could have to pay up to 15 billion euros a year to the LEDC’s. • A CO2 tariff could lead to a “trade war”.

30. Advantages?

31. Economic Advantages • Creation of new jobs • New industry would emerge to deal with further reductions in CO2 emission. • Already employs 300,000 people and has an annual turnover of 15 billion €. • Could lead to even lower prices for green energy • Improvements in technology and in the industrial processes. • Economies of scale (Green energy will cost less as more is produced)

32. Economic Advantages • Improvements in health • Lower the costs induced by the diseases caused by air pollution. • Help to prevent climate change and the economic damages associated to it. • Might decrease Europe dependency on foreign energy sources (Middle-East, Russia)

33. Conclusion • The EU has the potential of becoming the leading green economy. • Short-term costs outweighed by long-term profits. • A significant step forward in the fight against Global Warming.

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