Post on 28-Jan-2021
Voorpagina CE
Impacts on competitiveness of EU ETS
September 2008, Sander de Bruyn
An analysis of the Dutch industry for post-2012 EU ETS
Study design
• Question: which sectors of industry face serious impacts on competitiveness in NL?
• Partial analysis (no direct estimation of CL!)
• Study I: industry• Study II: aviation• Industry finished Jul 2008, aviation
Oct 2008.
Set up in the Netherlands
CE
Partial analysis
Which sectors face potential impacts on competitiveness
CPB
General equilibrium analysis
Carbon leakage, impacts on welfare
X
Industry reactions
Discussion in parliament
Analytical framework
Potentialcost price increase
Effects: competitiveness carbon leakage
Compensation mechanisms
CO2 target + EU-ETS price
QualitativeQuantitative
allocation mechanism
Impacts on profits (net cost priceincrease)
Impacts onprices
Pass throughpossible Effects:
lower demand
Pass throughnot possible
ScenariosExogenous price of CO2• €20 (sensitivity of €50/ ton CO2)Two allocation scenarios: (a) full acutioning; (b) partial grandfathering (only non-electricity part industry)Time dimension: 2005 with targets 2020Sectors:19 sectors and subsectors (2,3,4 digit)Unit of analysis: Cost price increase instead of GVA (links closer
to product prices)
Potential cost price increase
Two cost components1. Direct costs: costs of buying CO2
emission rights2. Indirect costs: higher electricity
price• Electricity model: at €20/tCO2,
electricity prices increase at €14/MWh for industry (LT contracts)
• CHP crucial and data difficult to get
Results: potential cost price increase, auctioning
0%1%2%3%4%5%6%7%8%9%
10%
Nutrit
ionTe
xtiles
Wood
Pape
rGr
aphic
sRe
fineri
es
Petro
chem
ical
Fertil
izer
Othe
r Bas
e Che
mica
ls
Anorg
anic
Chem
icals
Chem
ical p
roduc
tsGl
ass
Build
ing m
ateria
ls
Ceme
nt, ca
lcium,
gyps
um
Ceram
ics ne
c
Iron a
nd st
eel
Alumi
nium
Othe
r non
-ferro
meta
ls
Othe
r indu
stry
Direct ETS CostsIndirect ETS Costs
Potential cost price increase auctioning versus part.grandf.
0%
2%
4%
6%
8%
10%
Nutrit
ionTe
xtiles
Wood
Pape
rGr
aphic
sRe
fineri
es
Petro
chemi
cal
Fertil
izer
Othe
r Bas
e Che
micals
Anorg
anic C
hemi
cals
Chem
ical p
roduct
sGla
ss
Buildi
ng m
ateria
ls
Ceme
nt, ca
lcium,
gyps
um
Ceram
ics ne
c
Iron a
nd ste
elAlu
miniu
m
Othe
r non
-ferro
meta
ls
Othe
r indu
stry
Additional costs auctioningCosts of grandfathering
Sectors or subsectors
0%1%2%3%4%5%6%7%8%9%
Chem
ical s
ector
24Ba
se ch
emica
ls 24
1
Chem
ical p
roduc
ts 24
2_24
7
Othe
r Bas
e Che
mica
ls 24
11, 2
412
Inorga
nic C
hemi
cals
2413
Petro
chem
ical 2
414,2
416,2
417
Fertil
izer 2
415
Cos
t pric
e in
crea
seDirect ETS CostsIndirect ETS Costs
Subsectors or products?
0%1%2%3%4%5%6%7%8%9%
10%11%12%13%14%15%16%17%
Alumin
ium 27
42 (6
0 com
panie
s
Produ
ct prim
ary alu
minium
(2 c..
Cos
t pric
e in
crea
se a
nd p
rodu
ct p
rice
incr
ease
Direct ETS Costs
Indirect ETS Costs
Cost pass through
• Trade intensities with Annex-I and non-Annex I;
• Qualitative and semi-quantitative analysis on cost-pass through (literature review)
Trade intensities•
8 digit level (C
OM
TRAD
E)•
Export and im
port markets
Figure: Export
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Nutrition
Textiles
Wood
Paper
Graphics
Refineries
Petrochemical
Fertilizer
Other base chemical
Inorganic
Chemical products
Glass
Building materials
Cement, calcium and gypsum
Ceramics nec
Iron and steel
Aluminium
Other non-ferro
Other industry
non A
nnex1 n
on E
UA
nnex 1
non-E
UE
U27_IN
TR
A
Qualitative analysis
• Cost pass through depend on transport costs, market niches, market structure, etc.
• EU market: rates depend on literature studies and degree of existing imports from non-Annex I countries
• Exports to non-Annex I countries: no pass through possible
• Exports to Annex-I countries: in between EU market results and non-Annex I countries
Cost pass through (lit.review)
Sector Net cost price increase (%)
Fertilizer Most likely scenario: 0% cost pass through 8,1 Iron and steel Most likely scenario: 50% cost pass through 3,1 Worst case: 6% cost pass through 5,8 Other inorganic chemicals Most likely scenario: 50% cost pass through 2,5 Worst case: 25% cost pass through 3,8 Refineries Most likely scenario: 75% cost pass through 0,2 Worst case: 25% cost pass through 0,6 Cement Most likely scenario: 100% cost pass through 0 Worst case: 50% cost pass through 4,3 Paper Most likely scenario: 30% cost pass through 0,6 Worst case: 0% cost pass through 0,8
Net cost price increase
Compensation measures
• Free allocation• Border tax adjustments• Recycling of revenues- Corporate taxes- Labour taxes- Energy saving investment subsidies
Compensation measures: recycling corporate taxes
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Nutriti
on
Textil
esWo
odPa
per
Graphi
cs
Refine
ries
Petro
chemic
a l
Fertili
ze r
Base
Chem
ical ne
c
Anorg
anic
Chem
ical pr
oduct
sGla
ss
Buildi
ng ma
terials
Ceme
nt, ca l
cium
and gy
psum
Ceram
ics ne
c
Iron a
nd ste
el
Alumin
ium
Other
non-f
erro
Other
indust
ry
without compensationwith compensation
Compensation measures: energy saving subsidies
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Nutr iti
onTe
xtiles
Wood
Paper
Graphi
cs
Refine
ries
Petroc
hemica
l
Fertiliz
e r
Base
Chem
ical ne
c
Anorg
anic
Chem
ical pr
oductsGla
ss
Buildi
ng ma
terials
Ceme
nt, ca l
cium
and gy
psum
Ceram
ics ne
c
Iron an
d stee
l
Alumin
ium
Other
non-fer
ro
Other i
ndustry
without compensationwith compensation
Conclusions: effects on economy and environment• Total direct economic costs small
(0.2% of GDP). • Indirect economic effects differ
between free allocation and auctioning;
• Indirect effects free allocation: higher costs of CO2 compliance;
• Indirect effects auctioning: impacts on competitiveness and CL.
What should we have done different if we could start it all over again?• Using products instead of sectors for
homogenous subsector outputs• Using subsectors for non-
homogenous sector outputs. • Try to model economic costs of free
allocation in order to suggest break even point for free allocation: e.g. if CL is larger than x%, free allocation does more harm than good.
achterpagina CE
Thank you!
bruyn@ce.nl
CE Delft
• Independent, non-profit research & consultancy
• Transport, Energy, Economy
• 40 employees. • Economy: team of 10
environmental economists • Internationally: transport
and inclusion of aviation in EU-ETS
• In the Netherlands: environmental economics
www.ce.nl
Voorpagina CEStudy designSet up in the NetherlandsAnalytical frameworkScenariosPotential cost price increaseResults: potential cost price increase, auctioningPotential cost price increase auctioning versus part.grandf.Sectors or subsectorsSubsectors or products?Cost pass throughTrade intensitiesQualitative analysisCost pass through (lit.review)Net cost price increaseCompensation measuresCompensation measures: recycling corporate taxesCompensation measures: energy saving subsidiesConclusions: effects on economy and environmentWhat should we have done different if we could start it all over again?achterpagina CECE Delft