Financial incentives in environmental policy making. Sander de Bruyn Coordinator Environmental Economics CE Delft

Transcription

1 Financial incentives in environmental policy making Sander de Bruyn Coordinator Environmental Economics CE Delft

2 What is CE Delft? CE Delft is: Independent, non-profit research & consultancy Divisions Transport, Energy, Economics, LCA Orientation: bridging the gap between science and policy maker 40 employees Economics Dept.: team of 7 environmental economists (some PhD) Core activities: Design of economic policy instruments (maritime shipping, aviation) Ex-ante and ex-post evaluation of env. policy instruments Development and application of tools: shadow prices, SCBA Main clients: Dutch govt., EU govt., NGOs, companies 2

3 Design of economic instruments Several economic instruments in the Netherlands and EU originate in our work : Inclusion of Dubo in Green Financing : Airline ticket tax (abolished in 2009) : Inclusion of aviation in the EU ETS > now quite troublesome because of retaliation : Differentiation of BPM (car purchase tax) : Packaging tax (abolished 2012) ?? : Inclusion of maritime shipping in UNFCC framework including ETS or tax. But also several failures: 2002: Tax on extraction of minerals 2007: Differentiation of parking fees in cities 3

4 Aspects relevant for designing economic instruments Nobody is interested in optimality or internalisation of external costs However the instrument should have some environmental impact Consent of Ministry of Finance is crucial: therefore earmarking of revenues is impossible (also legal obstacles) Economic impacts for industry are important arguments Administrative costs are not so important Income effects are barely investigated in depth but they are always classified as very important 4

5 Do market based instruments save the environment? Yes according to economic theory (depending on elasticity) Not entirely according to questionnaires: (21% of respondents does not believe they work) Definitely not according to tax payers 5

6 Price is not everything: obstacles for green products Marketshare, price premium and willingness to pay for 5 product groups Dit is alleen een voorbeeld, vertrouwelijke informatie nog voor rapport voor de EC. Green product type Current marketshare (%) Current price premium % of consumers that is willing to pay extra WTP (%) Food product 5% 77% 40% 10,5% Electronics 34% 10% 35% 6,0% Cleaning product 4% 25% 41% 9,0% Hybrid vehicles 2% 6% 45% 6,5% Paper product 9% -4% 79%. p.m. Conclusion: price is important but not the only obstacle for green products purchase: availability, quality, information. 6

7 Type of economic instruments Subsidies Taxes Lower price of clean product/technique Direct subsidies mostly on techniques (e.g. EIA) Implicit subsidies often not environmentally friendly, harmful Increase price dirty product/technique Mostly on energy products (EB, excises on fuels) In most cases exemptions that undermine generic functioning Tradeable emission permits No x, CO 2 Design and allocation of allowances is very prone to lobbying and lead to imperfections Information type of instruments Relatively unknown in EU/Netherlands Labelling lacks coordination 7

8 Env motivated subsidies: 10x increase (90-07) Environmentally motivated subsidies in mio Climate change policies largely framed around subsidies 8

9 Env motivated subsidies: main points Potential state budget problem Oversubsidization is always there E.g. the marginal windmill farm is the only that does not make a profit Energy prices have been too conservatively estimated (MEP/EIA) Research CE Delft (2007) on MEP: 50% of subsidies is windfall profit companies Freeriders IBO (2001): freeriders 24-74%. Bv. EIA: 49-72% freeriders Fraud Evaluation EPR 2003: 18% of cases are probably fraudulent Administrative costs relatively high Subsidies for existing techniques do not stimulate innovation new techniques Subsidies do have value in R&D 9

10 Green taxes: 2x increase (90-07) Green taxes (bilion Euro), prices ,0 18,0 16,0 14,0 12,0 10,0 8,0 6,0 4,0 2,0 0,0 Environmental taxes Vehicle taxes Duty on mineral oils/derivatives miljard euro (prijspeil 2007)

11 Green taxes Big advantage levies is generic character Disadvantages consumers: income taxes increase income differences Disadvantage producers: distortion of competitive position (carbon leakage) With tax-free feet and exceptions, these disadvantages can be overcome but this reduces the effectiveness of levies Leakage is not only fear of industry (see e.g. ticket tax) Coordination Benelux and Germany (ticket tax) and/or EU (industry) are desirable Recycling of revenues is an issue 11

12 Emission trading: EU ETS Market prices are fluctuating and approaching 0 CO 2 reduction since 2005 in NL probably only 0,5Mt (excluding opt-in) 12

13 Emission trading: problems It is a political market and the size and allocation of the market is prone for lobbying impacts, Ex-ante assessments in 2008 did not properly incorporate the impact of auxiliairy policies, such as RED, Energy Saving Directive. Politicians tend to implement new policies without lowering the size of the market. Free allocation of allowances is introduced as a mean to combat carbon leakage. Assumption: firms are not engaged in marginal cost pricing so that the freely distributed allowances are not put forward in the price. Sijm (ECN) in : Electricity producers do make windfall profits, CE Delft (2010): Evidence of windfall profits at refineries, iron and steel and chemical sectors. Windfall profits = carbon leakage through product markets. Therefore EU ETS operates similarly as a carbon tax, however including a transfer of money from consumers to companies. Complexity and administrative costs are an issue in the current ETS. 13

14 Effectiveness CO 2 policies Build Environment: taxes >50% 14

15 Effectiveness energy savings in the industry: subsidies >70% Figuur: Energiebesparing in de industrie ten gevolge van beleid ( ) Belasting (EB) EU ETS Subsidies (EIA/VAMIL) Convenanten en regelgeving 15

16 Some minor conclusions 1. Price incentives are nowadays a very important tool in environmental policy, especially in energy and climate 2. However, a reform of the financial instruments is desirable where: Grants are transformed into commitments, e.g. SED or through the WMB (advantage: no over-subsidization) Taxes and ETS are shifted from producers to consumers (products) to reduce carbon leakage More information regarding environmentally friendly products, e.g. by specifying carbon footprinting of products 3. Further expansion of share of green taxes is possible and desirable given the fact that external effects are not yet fully internalized 16