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Alain Bernard and Marc Vielle

Welfare Cost for Europe of Non Participation in the Market for Tradable Permits and Comparative Efficiency of Corrective Policies towards Energy Intensive Sectors. Alain Bernard and Marc Vielle. Article 3 of the Kyoto Protocol.

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Alain Bernard and Marc Vielle

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  1. Welfare Cost for Europe of Non Participation in the Market for Tradable Permits and Comparative Efficiency of Corrective Policies towards Energy Intensive Sectors Alain Bernard and Marc Vielle

  2. Article 3 of the Kyoto Protocol “Any such trading shall be supplemental to domestic actions for the purpose of meeting quantified emission limitation and reduction commitments under that Article”

  3. French National Program of Climate Change Policy, MIES 2000 Tradable permits...“may only be supplemental to domestic efforts, which must represent the bulk in fulfilling the commitments”

  4. French Committee of Sustainable Growth “the trade of permits, in a country that would constrain its economy and population to a severe emissions abatement in order to get revenue from the sale of permits, could aggravate social inequalities”

  5. Issues  Welfare cost of non participation by EU to the market of tradable permits  Implications for Energy Intensive Sectors (EIS)  Assessment of various policies aimed at compensating distortions in EIS between Europe and other Annex B countries

  6. Plan • Overview of the model GEMINI-E3/GemWTraP • The Benchmark Scenario: Annex B Tradable Permits • Non Participation of EU and No Corrective Measures • Corrective measures for EIS • Summary of Results

  7. GEMINI-E3 : A Worldwide Dynamic General Equilibrium Model 7 Regions USA Energy Exporting Countries Japan Former Soviet Union France Other countries of European Union Rest of the World 8 Sectors/Commodities Coal Crude Oil Natural Gas Refined Oil Products Electricity Agriculture Energy Intensive Sectors Other Goods and Services Period of simulation yearly, from 2000 to 2040

  8. GEMINI-E3/GemWTraPMain Characteristics • Total Price Flexibility • Detailed Representation of Indirect Taxation • Measure of Welfare Cost of Policies and Components • and of course: Armington Assumption

  9. Measure of Welfare Cost and Components S= DR-CVI Total Welfare Gain Variation of Income Compensative Variation of Income = -DWL+GTT Deadweight Loss of Taxation Gains from Terms of Trade GTT=SEXP DPEXP-SIMP DPIMP SPIMPDIMP-SPEXPDEXP

  10. Definition of the Scenarios:Benchmark versus Non participation of EU • Tradable Permits between Annex B Countries • Tradable Permits between Annex B Countries other than European Union •  Domestic Tax in European Union countries After 2010 : Kyoto Forever

  11. Price of permits with and without European Union In $ 1990 per ton of carbon

  12. EU Tax versus Price of International Permits Price of carbon in $ 1990 per ton

  13. Welfare Cost for Annex B and non Annex countries (in % of Households’ Final Consumption)

  14. Welfare Cost for Annex B and non Annex countries (in % of Households’ Final Consumption)

  15. Welfare Cost for Annex B and non Annex countries (in % of Households’ Final Consumption)

  16. Welfare Cost for Annex B and non Annex countries (in % of Households’ Final Consumption)

  17. Components of Welfare Cost for European Countries Difference between Participation and Non Participation (in Billions of F90 or ECU90)

  18. Change in Production for EIS (in % w.r.t. BaU, in 2040) Participation of EU Non participation of EU France -0.4% -8.9% EU11 -1.5% -10.9% USA -2.5% -0.1% Japan -2.2% -0.4% FSU -31.5% -15.5% EEC 4.2% 6.5% ROW 2.2% 3.6%

  19. EU Corrective Policies for EIS  Exoneration of Carbon Tax  Mitigation of Carbon Tax (EU tax = price of permits)  Carbon Tax Rebating  Access to Permits for EIS  Implementation of Duties for non EU Imports

  20. Comparisons of Carbon Tax in France Year 2040 (1990 $ per ton of Carbon)

  21. Comparisons of CarbonTax in EU11 Year 2040 (1990 $ per ton of Carbon)

  22. Tradeoff between Welfare and EIS Production (France) Welfare Loss (in % of HFC) Change in EIS production

  23. Tradeoff between Welfare and EIS Production (EU11) Welfare Loss (in % of HFC) Change in EIS production

  24. Main Teachings  Non participation to the market of permits is costly for EU  Concerning other countries: Net Sellers are losers Net Buyers are winners  Concerning leakage in European EIS: - all considered policies have approximately the same efficiency - some increase the welfare cost, some on the contrary alleviate the burden

  25. Appendix Share of Energy in the Cost of Production: EIS versus GDP (1990)

  26. Share of Energy in the Cost of Production for some EIS (France, 1990)

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