Gasoline subsidy phase-out: environmental and human health ... · Overview 1 Introduction 2...
Transcript of Gasoline subsidy phase-out: environmental and human health ... · Overview 1 Introduction 2...
Gasoline subsidy phase-out: environmental and humanhealth effects
Mariza Montes de Oca Leon
DIW Berlin
April 19, 2018
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Overview
1 Introduction
2 Objective, empirical strategy, results
3 Energy reform 2013 and the gasoline market
4 Fiscal reform 2013 and the (explicit) carbon tax
5 The carbon market plans
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Introduction
The true cost of gasoline consumption: Gasoline demand estimation for an analysis
of health & climate change policies
Gasoline consumption doubled over the last twenty years generatingNegative local + global externalities, fiscal expenditures.
Fuel subsidies (200 billion pesos in 2011) aggravate this situation as theyincentivize consumption beyond the optimal level.
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Introduction
The true cost of gasoline consumption: Gasoline demand estimation for an analysis
of health & climate change policies
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Objective, empirical strategy, results
Objective
Purpose: Analyze the effects on welfare of the subsidy and proposewelfare-enhancing alternative policies.
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Objective, empirical strategy, results
Empirical strategy and results
Gasoline demand estimation
ln[Consumption] =
α + β1ln[Price]t + β2ln[Income]t + β3ln[Psubstitute]t + β4ln[Ppubtransp]t + ε
Econometric technique: Cointegration
Estimate a relationship between non-stationary series and avoid theproblem of spurious regression. more
Results: Short- and long-run price and income elasticities
”Draw” a demand and estimate DWL of subsidyLong-run price elasticity of demand (-)1.1Long-run income elasticity of demand (+) 0.82
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Objective, empirical strategy, results
Empirical strategy and results II
The subsidy generates a deadweight loss (DWL) of 6 percent of the totaltransfer.The local externality generates a loss ranging between 15 percent and 3.5times the transfer.Policy recommendation: Phase-out the subsidy and introduce a moderatetax of $6 pesos.
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Energy reform 2013 and the gasoline market
From (implicit) subsidies to (implicit) carbon taxes
Prices hikes since Dec 2009Subsidy: eliminated starting in mid-2014; 2015 first complete year for whichpositive revenues were created.
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Energy reform 2013 and the gasoline market
Energy reform 2013 and gasoline price liberalization
Energy reform provided an opportunity to formalize a trend of eliminatingsubsidies
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Energy reform 2013 and the gasoline market
Gasoline price liberalization
Energy reform provided an opportunity to formalize a trend of eliminatingsubsidies
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Energy reform 2013 and the gasoline market
Energy reform challenges
Challenges to market competition: ownership of facilities for fueltransportation and storage.
Newcomers: risk of investing in infrastructure while are still manyuncertainties about using Pemex’s facilities in the interim.
Communication challenges: no transparent communication of newimplicit tax
Public opinion: not clear who is getting that gap income (privatesector, government) or where revenues go
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Fiscal reform 2013 and the (explicit) carbon tax
Fiscal reform and the (explicit) carbon tax I
Tax on fossil fuel production & imports, not on emissions
Equivalent? In principle yes, but only emissions from combustion,process emissions are left out (e.g. manufacturing cement)
Introduced as one element of a comprehensive tax reform package:significant opposition, but public attention fixated on other taxes.smallskip
Downside: lower salience (Chetty et al.)
Applicable to: manufacturers, producers and importers.
Pemex, CFE & manufacturers (approx. 30 entities) ? liberalization ofenergy market will increase the number of liable entities.
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Fiscal reform 2013 and the (explicit) carbon tax
Fiscal reform and the (explicit) carbon tax II
Good direction, but low price (first set at $5.7/tCO2, approved byCongress at US $3.7 /tCO2)
Inefficient signal: initially designed to charge depending on carboncontent of fuels, but discussions in Congress let to different shadowprices for different fuels.
Implicitly capped at 3% of the fuel price (not explicitly in the law)
Yearly adjusted by inflation, not beyond.
Not revenue neutral (but created to avoid raising other taxes), nosimultaneous announcement for climate protection investment.
Liable companies may choose to pay the tax with credits from CDMprojects developed in Mexico.These would be accepted in an amount equivalent to the value ofcredits at the time of paying the tax
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Fiscal reform 2013 and the (explicit) carbon tax
CO2 Tax : President’s proposal
Proposed tax MX$ 70.68 /tCO2 (US$ 5.7 dollars)
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Fiscal reform 2013 and the (explicit) carbon tax
CO2 Tax: Approved by Congress
US $3.7 /tCO2, introduced exemptions, capped price-change at 3%
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Fiscal reform 2013 and the (explicit) carbon tax
What is the carbon tax doing?: Emissions reductions
Current emissions are compared to counterfactual (what would havehappened without carbon tax):
Price elasticities
Income elasticities
Approximately 1.8 million tCO2 per year
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The carbon market plans
Third (also explicit) carbon price: the M-ETS
Climate Change Act:
Pilot (2018/9-2020):
Coverage: initially electricity and industrial sectorsNo penalties for non-compliance: ETS cannot damage competitivenessAllocation: potentially large free allocation (benchmarking) for theindustrial sector, small or no for electricity sectorCarbon tax as price floor?
First phase (2021-onwards):
Probably expanding to transportation (strong will to link withCalifornia)?
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The carbon market plans
Present research questions/Future research agenda
Understand demand elasticities under different price change patterns:are small but constant changes having different Qd response thanlarge one-off price changes?
Political economy of fossil fuel subsidy phase-out: Presidentialapproval changes under small but constant Vs presidential approvalchanges under large one-off price changes
Chetty inspiration: are more salient taxes having a larger effect?
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The carbon market plans
Thank you for your time!Mariza Montes de Oca
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The carbon market plans
Cointegration technique
1 Why is it used?
OLS shows R2 high and significant coefficients, but may result in aspurious regression if time series are non-stationary.
Non stationary: have means, variances and covariances that changeover time (depend on t).
has a variance an mean that do not remain near or return to a long-runmean over time
Stationarity: the probability distributions of the stochastic process areequal overtime.
The econometric problem: the G.M. hypothesis of zero serialautocorrelation does not hold anymore
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The carbon market plans
Cointegration technique
1 Cointegration bivariate case
If if two economic variables (yt , xt) are non-stationary or I (1), thelinear combination of them, zt , will be generally I (1).It is possible that certain combinations of those non-stationary seriesare stationary.If a combination of those series is stationary, I(0), then it is said thatthe pair (yt , xt) is cointegrated.Engel-Granger approach:
1) OLS regression2) After estimation the Dickey-Fuller t test aplied to the OLS residuals(MackKinnon table for the critical values, according to the number ofvariables)3) If you can reject the null hypothesis of non-stationarity of the errorterm, you can conclude that the cointegration existsA long-term stable relationship between the variables exist
Error Correction model (ECM)
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The carbon market plans
Cointegration technique
1 Cointegration multivariate case
Johansen’s procedureNumerous cointegrating relationships (matrix of cointegrating vectors)Vector Error Correction Model (VECM)
Estimate VARTest for cointegration using Johansen test (if the variables arecointegrated the rank of the matrix is different from zero)Form and analyse VECM
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The carbon market plans
References
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The carbon market plans
Regressiveness of the subsidy
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