THE SOCIOECONOMIC IMPLICATIONS OF RENEWABLE ENERGY …€¦ · • Decreases welfare; more...
Transcript of THE SOCIOECONOMIC IMPLICATIONS OF RENEWABLE ENERGY …€¦ · • Decreases welfare; more...
THE SOCIOECONOMIC IMPLICATIONS OF RENEWABLE ENERGY AND LOW CARBON
TRAJECTORIES IN SOUTH AFRICA
Green and Social Workshop 12-13 March 2014
Bonn, Germany
Tara Caetano and James Thurlow
Overview • Introduction • Literature Review • Transmission Channels • Scenarios • Results • Concluding Remarks
Introduction • Challenge: Pursuing low carbon policies in the context of
high levels of unemployment, inequality and poverty. • Two main mitigation actions:
o Renewable energy investment o Proposed Carbon Tax
• Is this enough?
Literature Review • Three studies have explored the introduction of carbon taxes in the
South African context: o Pauw (2007):
• Static CGE model; detailed energy technologies; partial equilibrium energy model • Small reduction in welfare
o Devarajan et al. (2011) • Static CGE; one energy technology; no long-term electricity plan • Decreases welfare; more efficient than other tax instruments in curbing energy use and
emissions o Alton et al. (2012)
• Dynamic CGE; energy price response; capture L and K market rigidities; tax recycling • A CT of R12 per ton of CO2 in 2012 and projected to rise linearly to R210 per ton in
2022; sufficient to meet the national emissions reduction target. • Highlights the importance of both tax design and method of recycling; trade-off between
growth and welfare; ‘ring-fencing’ the electricity sector is a limitation
• This study: o More disaggregated electricity sector – detailed renewable energy options o Modeled the proposed carbon tax level
Renewable Energy Scenarios
0 10 20 30 40 50 60 70 80 90 100
2005 10 15 20 25 30
System
capacity (GW)
Gas Renewables Hydro Nuclear Coal
Base Case (BAU) Cost: R0.79 trillion [US$108 bil.]
0 10 20 30 40 50 60 70 80 90 100
2005 10 15 20 25 30
Policy-‐Adjusted Cost: +-‐R1.07 trillion [US$147 bil.] Emissions: -‐19% of BAU by 2025
0 10 20 30 40 50 60 70 80 90 100
2005 10 15 20 25 30
Emissions 3 Cost: R1.25 trillion [US$171 bil.] Emissions: -‐42% of BAU by 2030
RE-IPPPP
R-
R500,00
R1 000,00
R1 500,00
R2 000,00
R2 500,00
R3 000,00
Bid 1 Bid 2 Bid 3
Price (Average Rand per MWh) (Base April 2011)
Solar PV
Wind
Solar CSP
0,0%
10,0%
20,0%
30,0%
40,0%
50,0%
60,0%
Bid 1 Bid 2 Bid 3
Local Content Requirements
Solar PV
Wind
Solar CSP
Bid 1 Bid2 Bid 3 Solar PV MW Alloca3on 632 417 435
Construc3on Jobs 2381 2270 2119 O&M Jobs 6117 3809 7513
Wind MW Alloca3on 634 562 787 Construc3on Jobs 1810 1787 2612 O&M Jobs 2461 2238 8506
CSP MW Alloca3on 150 50 200 Construc3on Jobs 1883 1164 3082 O&M Jobs 1382 1180 1730
Carbon Tax • Carbon tax proposed by the South African government:
Partially implemented in 2015 and increased linearly to US$12 (R120) per ton of CO2
• Complex exemptions for energy intensive sectors:
$-
$2,00
$4,00
$6,00
$8,00
$10,00
$12,00
Proposed All sectors Electricity Petroleum Iron and steel, cement, ceramics,
chemicals and fugitive emissions from coal mining
Agriculture and Waste
US
Dol
lars
per
met
ric
tonn
e of
CO
2
Effective Carbon Tax After Exemptions
Linkages: RE Investment • Renewable Energy Investment
o éRE è éINV Elec è ê INV Econ • ê Growth: less investment available for more profitable sectors • é Direct Employment: higher level of employment compared to coal (high-
skilled) • ê Indirect Employment: profitable sectors also have é unskilled labour
shares; è negative impact on income distribution
o é RE Cost of Elec generation (é Inv = same GWh) éPrice Elec è
• é Price Electricity è ê Demand (dependent on the assumptions made about the ability to respond to energy price changes) è ê Employment
èNegative impact on income distribution
Linkages: Carbon Tax • Assumption: Carbon Tax introduced with a uniform
reduction in indirect taxes o Government revenue remains the same o Relative price increase for energy intensive goods
• é Price of energy intensive goods è êDemand è éCompetitiveness of less energy intensive goods èChance for Growth
• Some energy intensive activities also employ a large
share of unskilled labour: Employment Impacts è Decreased Employment è Decrease in welfare
Results • Based on two simulations:
o One with no carbon tax o One with a carbon tax of a the level value, R120/ton
• Carbon tax levied on all fossil fuels burned in SA • Imposed in 2015 and increased linearly to R120 per ton
in 2019 • Uniform reduction in indirect sales tax
Results
3,90% 3,90%
3,82%
3,79%
3,67%
3,64%
3,50%
3,55%
3,60%
3,65%
3,70%
3,75%
3,80%
3,85%
3,90%
3,95% Av
erag
e Ann
ual G
DP
Gro
wth
(%)
GDP Growth
GDP Growth
Results
0,00%
29,26%
11,00%
39,66%
18,00%
43,62%
0,00%
5,00%
10,00%
15,00%
20,00%
25,00%
30,00%
35,00%
40,00%
45,00%
50,00%
Dev
iatio
n fr
om th
e ba
selin
e in
203
0
Emissions Reduction
Emissions Reduction
Results
1,32%
1,31% 1,31%
1,30%
1,29%
1,28%
1,26%
1,27%
1,28%
1,29%
1,30%
1,31%
1,32%
1,33%
Base Base CT Policy-Adjusted Policy-Adjusted CT
Emissions 3 Emissions 3 CT
Aver
age
Incr
ease
in E
mpl
oym
ent
Employment
Employment
Results 1,10%
1,06% 1,01%
0,97%
0,85% 0,81%
0,00%
0,20%
0,40%
0,60%
0,80%
1,00%
1,20%
Income Distribution
Relative Income Growth of Poor Households
Concluding Remarks • Carbon tax is an effective mechanism for emissions
reduction • Level is too low to get us to our Copenhagen pledge • Won’t have a ‘devastating’ impact on the economy • Direct employment impacts of renewable energy
investment likely to be drowned out by indirect impacts on employment – weakened by a decrease in cost
• Choice of recycling mechanism is critical to ensure synergies between green and social
Thank you!
Comments and questions are welcome. [email protected]
Energy as an intermediate input
Labor Capital
Inputs
Sector output
LEO
Inputs
Input 1
Energy
Input n
LEO
CES
Methodology • 2007 social accounting matrix (SAM)
o 55 activities and 47 commodities • 3 x agri, 44 x industry (4 x petr, 10 x elec), 8 services
o 7 factors of production • 4 labour groups (based on level of education), 1 energy and 1 non-energy
capital, 1 agricultural crop land o 14 households
• 10 deciles with the top decile divided into 5 sub-groups
• Energy is an intermediate input o Leontief: fixed proportions.
• Energy-savings investment behaviour:
𝑖𝑜↓𝑖𝑗,𝑡+1 /𝑖𝑜↓𝑖𝑗𝑡 =1−(1− 𝑃↓𝑗𝑡 /𝑃↓𝑗,𝑡−1 ↑−𝜌 )∙ 𝑠↓𝑖
Closure Rules • Upward sloping labor supply curves for less-educated
workers; full employment for skilled labour
• “Putty clay” capital and endogenous capital accumulation
• Fixed current account with flexible real exchange rate
• Savings-driven investment o Distinguish between electricity (exogenous) and non-electricity sector investment o Electricity investment differentiated by subsector (esp. import content and job
creation) o Government borrows abroad to pay for investment (gradual interest and principal
repayment)
Energy-saving investment behaviour
• Change in energy inputs per unit of output based on energy prices
• Energy product input coefficient (ioij) falls when… o Energy prices (pi) rise (provided there is some new investment) o New investment share (sj) is positive (provided the price rises)
• Governed by a response elasticity (ρ)
𝑖𝑜↓𝑖𝑗,𝑡+1 /𝑖𝑜↓𝑖𝑗𝑡 =1−(1− 𝑃↓𝑗𝑡 /𝑃↓𝑗,𝑡−1 ↑−𝜌 )∙ 𝑠↓𝑖
REIPPP bid allocation
IRP Renewable Energy Breakdown
0
10
20
30
40
50
60
70
Baseline Policy Emissions
GW
Planned New Capacity Builds in the IRP (GW)
gas
waste
wind
CSP
PV
nuclear
coal
Committed
Economy-wide framework
Trade Remittances
Foreign markets and countries
Loans
Taxes
Public sector or government
Recurrent spending
Taxes & social grants
Taxes
Public investment Foreign
investment
Savings & private
investment Productivity
Human/physical capital
Product markets Production
Payments
Industry
Agriculture
Services
Rural
Urban
Incomes
Consumption
Factor markets
Exports Imports
Total supply
Labor Capital Inputs
Sector output
Factory
Supplier 1 Supplier n
Output 1 Output n
Domestic supply
Warehouse
Households
Government
Investment
Intermediates
Supermarket
Traders
Freight transport
Consumption linkages
Production linkages
Demand and supply linkages
CES LEO
LEO
CES
CET
CES
LES
LEO
LEO
Natural gas
Coal
Electricity
Solar (photovoltaic)
Solar (thermal)
Wind
Waste
Gas-‐Eired
Hydropower
Gas-‐to-‐liquid
Oil reEining
Biofuels
Coal-‐to-‐liquid
Petroleum
Feedstock
Crude oil
Final users Industries Households Government Investment
Coal-‐Eired (discard)
Coal-‐Eired (low grade)
Nuclear
Diesel
Imports
Energy sector
Partly exported
Imported
Partly imported
2007 energy balance (native units) Coal (kt)
Crude oil (kt)
Natural gas (TJ)
Electricity (GWh)
Petroleum (Ml)
Production 247,666 128,033 247,587 25,528 Imports 1,783 19,042 45,383 10,624 4,859 Exports 66,964 13,589 4,743 Stocks 7,324 Total 175,162 19,042 173,417 244,622 25,645 Electricity 102,870 19,113 Petroleum 45,437 19,042 67,732 7,133 Industry 22,486 104,821 122,400 1,209 Transport 3,501 21,544 Agriculture 32 5,998 1,433 Commerce 3,201 864 32,705 704 Residential 1,135 53,771 754
Differential electricity prices Rand per MWh in 2005
191
442
186 161 150
0
100
200
300
400
500
Aver
age
Plas
tic p
rodu
cts
Hou
seho
lds
Furn
iture
O
ther
che
mic
als
Clo
thin
g O
ther
serv
ices
and
pro
duce
rs
Mac
hine
ry
Fore
stry
A
gric
ultu
re
Oth
er tr
ansp
ort e
quip
men
t Fi
sher
ies
Foot
wea
r Sc
ient
ific
equi
pmen
t B
ever
ages
and
toba
cco
Leat
her p
rodu
cts
Vehi
cles
Tr
ansp
ort s
ervi
ces
Food
pro
cess
ing
Met
al p
rodu
cts
Gov
ernm
ent s
ervi
ces
Oth
er m
anuf
actu
ring
Hot
els a
nd c
ater
ing
Bus
ines
s ser
vice
s G
lass
pro
duct
s Tr
ade
serv
ices
C
onst
ruct
ion
Fina
ncia
l ser
vice
s C
oal m
inin
g El
ectri
city
El
ectri
cal m
achi
nery
Pa
per
Com
mun
icat
ion
Bas
ic c
hem
ical
s Te
xtile
s N
on-m
etal
s O
ther
min
ing
Woo
d pr
oduc
ts
Rec
yclin
g N
onfe
rrou
s met
als
Rub
ber p
rodu
cts
Wat
er d
istri
butio
n Ir
on a
nd st
eel
Prin
ting
Petro
leum
refin
ing