The Pricing of Carbon Emissions from Business Perspective in Northeast Asia

1. The Pricing of Carbon Emissions from Business Perspective in Northeast Asia Presenter: Xianbing Liu Senior Policy Researcher/Task Manager Kansai Research Centre, IGES, Japan

2. Presentation Structure ❖ Background of the MBIs project ❖ Surveys and the samples under the project ❖ Major results from the project studies ❏ Determinants for energy saving practices ❏ Company’s MBIs awareness and subjective acceptability ❏ Carbon prices affordable for the companies; ❏ Choice experiment of carbon pricing policies ❖ Research policy implications ❖ Major outputs and efforts in impact generation ACMSA 2013

3. Overall Framework of MBIs Project Basic ideas: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:China, Japan and the Republic of Korea Policy focus: Financial subsidy, carbon taxes and GHG emissions trading scheme Overall objective: To support the related policy discussions from company’s viewpoints in this region ACMSA 2013

4. Climate Policies in the Three Countries ACMSA 2013

5. Surveys under MBIs Project and the Samples ACMSA 2013

6. Determinants for Industrial Energy Saving ACMSA 2013

7. MBDC Card for Estimating Cost Affordability Five levels of acceptance 15 increase options in Energy costs ACMSA 2013

8. Affordability Responses of Samples in China (N=111) ACMSA 2013

9. Affordability of All the Samples in China (N=111) 50% of the samples corresponds to the ratios of 2.8% and 9.3% on the two curves. ACMSA 2013

10. Carbon Prices Affordable for the Companies a) Similar acceptable ratios in energy cost increases due to pricing of carbon for companies of Japan and Korea, which are much lower than Chinese companies; b) Similar range of carbon prices affordable for companies in Japan and China (5-13 $/t-CO2); c) Carbon prices affordable for Korean companies are 2.3-3.5 $/t-CO2; d) The business affordability is much lower than the price level needed for realizing Copenhagen pledges of the three countries. ACMSA 2013

11. Company’s Awareness and Acceptability of MBIs ACMSA 2013

12. Payback Time for Energy Saving Investment a) 1-3 years of payback time expected by Chinese and Korean companies; b) The payback time expected by Hyogo companies is longer at 3-5 years; c) High expectation to the profitability of energy saving investments reveals the effectiveness of carbon pricing policies; d) Providing subsidies shorten the payback time and remove barrier of upfront cost, and is therefore useful at the earlier stage of LCT applications. ACMSA 2013

13. Attributes and Levels of Carbon Tax and GHG ETS ACMSA 2013

14. Design for Choice Modeling Applied for this research ACMSA 2013

15. Experiment Design and Choice Set Examples ◆ Design Expert 8.0 was used; ◆ D-optimal design applied; ◆ 12 Choice sets constructed; ◆ Two versions, 6 sets for each; ◆ An example set of carbon tax policy in China. ◆ Design method is the same as carbon tax policy; ◆ An example set of GHG ETS in Korea. ACMSA 2013

16. Attributes Determining Company’s Policy Choices Analysis models applied: MNL: Multinomial Logit RPL: Random Parameter Logit LC: Latent Class Model ACMSA 2013

17. WTP Values of Non-price Policy Attributes Example explanations: ◆ Setting relief measure for energy-intensive sector (RELIEF-B) is the same as a decrease of 65.9 Yuan/t-CO2 of tax rate in influencing the company’s policy choice; ◆ Similarly, using the tax revenue earmarked for climate change (REVENUE-B) rather than as general budget (REVENUE-A) equals to a decrease of 23.2 Yuan/t-CO2 in tax rate. ACMSA 2013

18. Policy Implications of the MBIs Project • Overall, this project studied the application of MBIs, especially carbon pricing tools, for enhancing energy saving and carbon mitigation from the business perspective; • The identification of factors influencing company’s energy saving practices clarifies the direction for future policy efforts; • Estimations of carbon price level affordable for the companies confirm the difficulty for closing the policy gap, and provide meaningful referendums for the development of carbon pricing policies; • The policy experiment confirms the principles for the design of carbon pricing policies, including carbon tax and GHG ETS, and indicates the options preferable for the industry; • The practical way is to combine a carbon tax with wide coverage but low tax rates with domestic GHG ETS focusing large emitters. The revenues from carbon pricing shall address R&D and earlier applications of LCT. ACMSA 2013

19. Outcomes and Impact Generation • Organizations in China: • Universities: Tsinghua, Tongji • Research Institutes: ERI/NDRC, • RIFS/MOF • National Government: MOEP • Local governments, etc. Networking 1 1+(1) 1+(1) (1) 4+(2) Speedy Outputs Generation National policy makers & regional policy platform Policy brief KRC/IGES Book Chapters (2) • Organizations in Korea: • Research Institutes: KEI, KECO, • KEEI, GGGI • Government: MOE, MOKE • Universities • etc. Invited presentations: 1) Symposium of UNDP 2) Sao Paulo Univ., etc. Networking Present at conferences: e.g., EAERE, GCET, JSEEPS, KAPF, etc. ACMSA 2013

20. Thank you for your attention! ACMSA 2013