EU-wide Emissions Trading Economic Impact Analysis Workshop

1. Economic analysis to support an impact assessment of the possible establishment of EU-wide emissions trading of NOx and/or SO2 Stakeholder Workshop Wednesday 10th February 2010 Ben Grebot (Entec) ben.grebot@entecuk.co.uk

2. Agenda • Aims and objectives • Project team • Proposed approach • Timescales • How can you help?

3. Aims & Objectives • Building on outputs of phase I study, main aim of this work is to undertake "a robust economic analysis concerning specific issues of a possible emissions trading scheme for IPPC installations for NOx and SO2 under EU-wide rules." • Key objectives: • Analysis and modelling of economic impacts on international competitiveness, competition in the internal market and labour markets. • Consideration of additional economic impacts such as impacts on the dynamics of innovation and the extent of indirect effects on other parts of the economy (e.g. non-traded economic sectors, consumers & SMEs)

4. Project Team • Entec lead consultant • PM team (Alistair Ritchie & Ben Grebot) • Core team of economists & industrial emissions specialists including members of phase I study • Cambridge Econometrics • E3ME modelling • Lead = Hector Pollitt • Regional Environmental Centre for Central & Eastern Europe (REC) • Data gathering for selected Member States • Lead = Tamas Kallay

5. Project Methodology: Overview Task 1: Development of an assessment methodology Task 2: Enhancements to existing database & emissions TSM Task 3: E3ME Modelling (Camecon) Task 5: Analysis of additional impacts Task 4: Case studies & stakeholder consultation Task 6: Stakeholder workshops

6. Task 1: Development of an assessment methodology • linkages to existing study • impacts to be included in analysis • key information gaps & how we plan to address them • approach for assessing findings including consideration of sectoral level impacts and national and regional effects

7. Task 2: Enhancements to existing database & emissions trading simulation model • Certain refinements need to be made to the IPPC database and TSM from the phase I study in order to meet the specific needs of this project: • Regional analysis - added cost data at a regional level (for use in analysis of E3ME outputs) • Sectoral cost allocation – input data to E3ME • Fuel mix – input data to E3ME on impacts on the fuel mix of each scenario

8. Task 3: E3ME modellingBrief description of the model • A large-scale econometric computer model, with: • coverage of each EU member state • a complete system of the national accounts incorporated • detailed sectoral disaggregation (42 economic sectors) • annual solutions up to 2030 and beyond • See www.e3me.com for further details

9. Task 3: E3ME modellingRole of the model in the project Phase I study outputs Added costs • Additional & separate analyses: • micro-economic impacts • other detailed analysis • E3ME modelling: • macro-economic impacts • sectoral impacts Impact Assessment & reporting

10. Task 3: E3ME modellingHow the model will be applied • Up to 4 scenarios to be compared to a set of baseline projections • Main input will be changes in costs • This is entered through the input-output structure, so we need to know • changes in purchasing patterns • increases in labour • reductions in fuel costs • etc.

11. Task 3: E3ME modellingModel outputs • International competitiveness: • trade flows - imports and exports (which can be used to assess SO2 and NOx leakage) • sectoral output • investment (gross fixed capital formation) • Impacts on GDP • Labour markets: • changes in employment by sector • total unemployment in each MS

12. Task 3: E3ME modellingModel outputs • Impacts on non-traded economic sectors • How final prices are impacted (electricity, manufactured products etc) • Household spending • Distributional effects on income and socio-economic groups

13. Task 4: Case studies & stakeholder consultation • Selection of case studies & wider stakeholder consultation to better understand • potential impacts on each sector • different sized companies • trade between key MSs • trade between the EU and rest of the world • Proposed sectors: • electricity • refineries • steel • cement • Balanced selection of MSs (geographically, size, national legislation, proximity to non-EU countries etc.)

14. Task 4: Case studies & stakeholder consultation • Approach for each case study: • develop structured generic interview checklist • develop information sheet for each case study including details of ET scenarios plus key aggregated data to help illustrate potential response • submit checklist and information sheet • telephone interview • submit interview write-up to company for checking/revision

15. Task 5: Analysis of impacts Economic: • Functioning of the internal market & competition • Competitiveness, trade & investment flows* • Operating costs & conduct of business/SMEs • Innovation & research • Consumers & households* • Specific regions or sectors • Third countries & international relations* • Macroeconomic environment* Social: • Employment & labour markets* Environmental: • Fuel mix – input to E3ME modelling

16. Task 6: Stakeholder workshops • Two workshops in Brussels with relevant stakeholders (MSs, industry and NGOs) • to present methodology (this workshop) • to present results (workshop 2) • Proposed date for 2nd workshop: 14 October 2010

17. Timescales • Scenario & case study selection: March/April • Analysis: April – August • 2nd stakeholder workshop: October • Final deliverables: November/December

18. How can you help? • Feedback on trading scenarios from phase I study – to support selection for more detailed consideration in this study • Support for data gathering for the investigation of specific economic impacts • Case studies • Feedback on draft outputs at 2nd stakeholder workshop

19. Thank you – comments, questions etc.