Our Common Future Under Climate Change

International Scientific Conference 7-10 JULY 2015 Paris, France

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Thursday 9 July - 17:30-19:00 UPMC Jussieu - ROOM 201 - Block 24/34

3308 – Fiscal Reform

Parallel Session

Chair(s): T. Sterner (Univ of Gothenburg, 40530 Gothenburg, Sweden)

17:30

A balance of ‘bottom-up' and ‘top-down' in linking climate policies

T. Sterner (Univ of Gothenburg, 40530 Gothenburg, Sweden)

Abstract details
A balance of ‘bottom-up' and ‘top-down' in linking climate policies

T. Sterner (1)
(1) Univ of Gothenburg, Dept of economics, 40530 Gothenburg, Sweden

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‘Top-down’ climate negotiations embodied by the Kyoto Protocol have all but stalled, chiefly due to disagreements over targets and objections to financial transfers. To avoid those problems, many have shifted their focus to linkage of ‘bottom-up’ climate policies such as regional carbon markets. This approach is appealing, but we identify four obstacles to successful linkage: different levels of ambition; competing domestic policy objectives; objections to financial transfers; and the difficulty of close regulatory coordination. Even with a more decentralized approach, overcoming the ‘global warming gridlock’ of the intergovernmental negotiations will require close international coordination. We demonstrate how a balance of ‘bottom-up’ and ‘top-down’ elements can create a path toward an effective global climate architecture.

17:32

Do Chinese provinces successfully implement climate mitigation policies? A political economy approach

P. Motel-Combes (University of Auvergne, Clermont-Ferrand, France), J.-L. Combes, (University of Auvergne, Clermont-Ferrand, France), M. Fodha, (University of Paris 1 Pantheon Sorbonne, Paris, France), M.-F. Renard, (University of Auvergne, Clermont-Ferrand, France), S. Zhang, (Peking University, Peking, China)

Abstract details
Do Chinese provinces successfully implement climate mitigation policies? A political economy approach

P. Motel-Combes (1) ; JL. Combes, (1) ; M. Fodha, (2) ; MF. Renard, (3) ; S. Zhang, (4)
(1) University of Auvergne, School of Economics - CERDI, Clermont-Ferrand, France; (2) University of Paris 1 Pantheon Sorbonne, Pse, Paris, France; (3) University of Auvergne, School of economics - cerdi - idrec, Clermont-Ferrand, France; (4) Peking University, College of environmental sciences and engineering, Peking, China

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China is expected to be a major actor in the design of a new global climate architecture. Its non-participation could lead to a substantial increase in GHGs concentrations by the end of 21st century (Paltsev et al. 2012). China has already managed to cut CO2 emissions in several energy intensive industries and is now endowed with good technological and scientific capacities (Rock et al. 2013). The central government has fostered the implementation of environmental policies which are now a priority of the new Chinese growth model. It has been however recognized that China’s climate governance can further be improved regarding the coordination of national and provincial levels (Richerzhagen & Scholz 2008). This paper precisely intends to add to the debate between top-down and bottom-up approaches of climate mitigation policies in the context of China.

Indeed, the efficiency of climate policies in China is challenged by strong spatial i.e. provincial disparities. Provincial environmental characteristics are very different considering climate, geography, population densities, as well as urbanization and for instance, there is a very large diversity of energy intensity between provinces. The geographical distribution of China’s energy intensity exhibits a characteristic of progressive increases from the eastern coastal provinces to the western provinces (Yu 2012). One of the most striking features of China is its decentralized organization and the strong power devoted to provincial governments. The leading officials have mainly focused on economic growth targets (Combes, Renard, Tapsoba, 2015) but environmental objectives are written in their responsibility contracts for few years. Local leaders sign individual responsibility contracts that embed energy or emission reduction requirements for their localities. The central government gives priorities at the national level and then assigns specific targets for the different levels (Kostka 2014).

This paper contributes to the understanding of provincial climate mitigation policies and its aim is twofold. First an original index of climate regulation is calculated. It is devoted to the measurement of “revealed” efforts made by provinces aiming at downsizing GHGs emissions. This effort index is estimated by eliminating the impact of structural factors of CO2 emissions through a standardization equation. Second, an econometric analysis allows to a better understanding of the determinants of provincial climate policies. Policy implications are related to the need for more coordination between bottom-up and top-down policies to increase the efficiency of current practices. As the burden on provincial and national budgets may be very heavy, the choice of the level of implementation is a strong political constraint and need information on the provinces’ efforts.

References

Combes, J.L. Renard, M-F. & Tapsoba, J., 2015. Central government versus provincial governments in China: which determinants for cyclicality of the fiscal policy? Mimeo

Kostka, G., 2014. Barriers to the Implementation of Environmental Policies at the Local Level in China, Washington D.C.: The World Bank.

Paltsev, S. et al., 2012. The role of China in mitigating climate change. Energy Economics, 34, Supplement 3, p.S444‑S450.

Richerzhagen, C. & Scholz, I., 2008. China’s Capacities for Mitigating Climate Change. World Development, 36(2), p.308‑324.

Rock, M.T. et al., 2013. Technological learning, energy efficiency, and CO2 emissions in China’s energy intensive industries, Washington D.C.: The World Bank.

Yu, H., 2012. The influential factors of China’s regional energy intensity and its spatial linkages: 1988–2007. Energy Policy, 45, p.583‑593.

17:40

A public finance perspective on climate policy: Six interactions that may enhance welfare

J. Siegmeier, (Mercator Research Institute for Global Commons and Climate Change, Berlin, Germany), L. Mattauch, (Mercator Research Institute for Global Commons and Climate Change, Berlin, Germany), M. Franks, (Potsdam Institute for Climate Impact Research (PIK), Potsdam, Germany), D. Klenert, (Potsdam Institute for Climate Impact Research (PIK), Potsdam, Germany), A. Schultes, (Potsdam Institute for Climate Impact Research (PIK), Potsdam, Germany), O. Edenhofer (Potsdam Institute for Climate Impact Research, Potsdam, Germany)

Abstract details
A public finance perspective on climate policy: Six interactions that may enhance welfare

J. Siegmeier, (1) ; L. Mattauch, (1) ; M. Franks, (2) ; D. Klenert, (2) ; A. Schultes, (2) ; O. Edenhofer (3)
(1) Mercator Research Institute for Global Commons and Climate Change, Berlin, Germany; (2) Potsdam Institute for Climate Impact Research (PIK), Potsdam, Germany; (3) Potsdam Institute for Climate Impact Research, Potsdam, Germany

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Climate change economics mostly neglects sizeable interactions of carbon pricing with other fiscal policy instruments. Conversely, public finance typically overlooks the effects of future decarbonization efforts when devising instruments for the major goals of fiscal policy. We argue that such a compartmentalisation is undesirable: policy design taking into account such interdependencies may enhance welfare and change the distribution of mitigation costs within and across generations. This claim is substantiated by analyzing six interactions between climate policy and public finance that are insufficiently explored in current research: (i) reduced tax competition in an open economy, (ii) portfolio effects induced through climate policy, (iii) restructuring public spending, (iv) revenue recycling for productive public investment, (v) greater intragenerational equity through appropriate revenue recycling and (vi) intergenerational Pareto-improvements through intertemporal transfers. We thereby structure the hitherto identified interactions between climate change mitigation and public finance and show that jointly considering carbon pricing and fiscal policy is legitimate and mandatory for sound policy appraisal.

17:50

Environmental Tax Reform and Heterogenous Labor Markets: Can the Trade-Off between Environmental Quality, Efficiency and Income Distribution been Avoided?

M. Chiroleu-Assouline (Paris School of Economics & University Paris 1 & INRA, Paris, France), D. Aubert (Université Paris 1 Panthéon-Sorbonne, Paris, France)

Abstract details
Environmental Tax Reform and Heterogenous Labor Markets: Can the Trade-Off between Environmental Quality, Efficiency and Income Distribution been Avoided?

M. Chiroleu-Assouline (1) ; D. Aubert (2)
(1) Paris School of Economics & University Paris 1 & INRA, Paris, France; (2) Université Paris 1 Panthéon-Sorbonne, Paris, France

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This paper investigates the distributional and efficiency consequences of an environmental tax reform, when the revenue of the green tax is recycled by a variation of labor tax rates. We build a general equilibrium model with heterogeneous imperfect labor markets, pollution consumption externalities, and where poor households spend relatively more on polluting goods than rich households (Stone-Geary preferences). We characterize the necessary conditions for the obtainment of the environmental and welfare dividends and we analyze the distributional properties of the green tax. We show that even in the case where the reform appears to be regressive, the gains from the double dividend can be made Pareto improving by using a redistributive non-linear income tax if redistribution is initially not too large. Moreover, the use of a non-linear income tax acts on unemployment and can moderate the trade-off between equity and efficiency. We finally provide simulations highlighting the room for manoeuvre for environmental tax reforms for the French case.

 

18:00

A Carbon tax and the Risk of Inequity

E. Combet (Centre International de Recherche sur l'Environnement et le Développement (CIRED), Nogent-sur-Marne, France)

Abstract details
A Carbon tax and the Risk of Inequity

E. Combet (1)
(1) Centre International de Recherche sur l'Environnement et le Développement (CIRED), Nogent-sur-Marne, France

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This paper aims at clearing up some misunderstandings about the social impacts of carbon taxes that proved to be a decisive obstacle to their further consideration in public debates. It highlights the gap between the cost of a carbon tax reform as it is spontaneously perceived by the taxpayers and the reality of its ultimate consequences: the real impact on households’ poverty and inequalities is not mechanically determined by the initial burden of energy on consumption budgets and by the capacity of households to alleviate it, but also depends upon the use made of the tax proceeds and its general macroeconomic impacts. The comparison of five tax-recycling schemes highlights the existence of trade-offs between maximising total consumption, reducing unemployment, maximising the consumption of the low-income classes and reducing income inequality.

18:10

Modelling of distributional impacts of energy subsidy reforms: an illustration with Indonesia

L. Campagnolo (Fondazione Eni Enrico Mattei & Centro Euro-Mediterraneo sui Cambiamenti Climatici, Venice, Italy), J. Chateau (OECD, Paris, France), R. Dellink (OECD, Paris, France), O. Durand-Lasserve (OECD, Paris, France)

Abstract details
Modelling of distributional impacts of energy subsidy reforms: an illustration with Indonesia

L. Campagnolo (1) ; J. Chateau (2) ; R. Dellink (2) ; O. Durand-Lasserve (2)
(1) Fondazione Eni Enrico Mattei & Centro Euro-Mediterraneo sui Cambiamenti Climatici, Venice, Italy; (2) OECD, Paris, France

Abstract content

Indonesia highly subsidises the consumption of electricity and oil products for both households and firms, and in 2011 was ranked the 10th country in the world in terms of total government expenditures on fossil fuel consumption subsidies (IEA, 2012). The energy subsidies represent a burden for government budget, a source of vulnerability for the economy and perform badly in terms of redistribution. Furthermore, fuel subsidies, by encouraging fossil-fuel burning, increase GHG emissions and local air pollution. This paper provides a quantitative assessment of fossil-fuel subsidy phase out in Indonesia, both at macro and micro level, with particular attention to distributional effects on households heterogeneous in terms of income structures and expenditure patterns. On this purpose, we combine a micro-level representation of households’ incomes and consumption with a macroeconomic model. We enhance the dynamic global and multi-sectoral computable general equilibrium model, OECD ENV-Linkages (Chateau et al., 2014), by directly integrating a module describing the behaviour of more than 10,000 representative household groups for Indonesia. In the other regions, the final consumers are portrayed by a single representative household. The characteristics of the representative household in terms of preferences and endowments are based on national accounting data. The multi-household representation for Indonesia is based on integrating and reconciling this macroeconomic information with data from the fourth edition of the “Indonesia Family Life Survey” (IFLS4) realised in 2007 (Strauss et al., 2009).

The baseline scenario follows the macroeconomic projections of the OECD Economic Outlook and the corresponding long-term projections (Chateau et al., 2014). All the energy policies included in the Current Policy Scenario of the World Energy Outlook 2013 (IEA, 2013) are considered except the reforms to the consumers’ energy subsidies that remain at their 2011 levels. In the policy scenarios, we assume that, between 2012 and 2020, Indonesia unilaterally realises a gradual phase out of electricity and fossil fuel subsidies for households and firms. The scenarios differ by the budget-neutral compensating scheme for households they assume: cash transfers, subsidies on food products, and labour income support. An additional policy scenario envisions a global multilateral subsidy phase out and a cash transfers compensating scheme.

All the scenarios give way to positive impacts on GDP at the 2020 horizon (+0.4% to +0.7% in 2020 with respect to the baseline) due to a decrease in the deadweight loss associated with the subsidies and also, in some scenarios, to higher savings and investment. The cash transfer scenario (both unilateral and multilateral) determines the highest GDP outcome. The gains in terms of Equivalent Variation are even higher due to trade improvements consecutive to the reform, and range between 0.8% and 1.4% in 2020. The distributive direct effect of fuel price increase is regressive for households. The effects through labour and non-labour incomes are more or less distribution neutral. However, the redistribution schemes can make the total effect of the reform progressive and pro-poor. The cash transfer scenario is the most progressive among the scenarios investigated. The budget redistribution using food subsidies is less progressive than with cash transfers. Transfers proportional to labour income, as used in the labour support scenario, are regressive because the incomes from formal labour represent a higher proportion of total incomes for high-income households than for low-income households. The reform outcomes are also heterogeneous across rural and urban areas: the cash transfer and the food subsidy scenarios are more beneficial to rural than to urban households due to the lower share of energy expenditures in rural areas. The labour support scenario, in contrast, is less beneficial to the rural households, because of the greater importance of the informal sector in these areas.

The phase out of energy consumption subsidies contributes to reduce in energy-related CO2 emissions (between -10% and -12%) and GHG emissions (between -7.3%and -8.3%) in 2020 compared with the baseline. The emission reduction is mainly driven by a decrease of household energy consumption.