1. www.seri.at Global effects of a European environmental tax reform WIOD Conference on Industry-Level Analyses of Globalization and its Consequences 26 May 2010 Christine Polzin (SERI) Dr Christian Lutz (GWS) Dr Stefan Giljum (SERI)

2. 2 Content 1.Background: The PETRE project 2.The GINFORS Model 3.Results 4.Policy recommendations

3. 3 Content 1.Background: The PETRE project 2.The GINFORS Model 3.Results 4.Policy recommendations

4. 4 What are the global impacts of a European environmental tax reform? PET RE Resource Productivity, Environmental Tax Reform and sustainable growth in Europe Environmental tax reform in the EU Environmental impacts: Material extraction Energy-related CO2 emissions Economic impacts: economic growth International trade & sectoral competitiveness EU-27 OECD Emerging economies Rest of the world http://www.petre.org.uk/

5. 5 Content 1.Background: The PETRE project 2.The GINFORS Model 3.Results 4.Policy recommendations

6. 6 GINFOR S Global INterindustry FORecasting System (GINFORS) GINFORS: Economy-energy-environment simulation model Global multi-country approach Multi-sector approach Links modules for bilateral trade, macroeconomic behaviour, industrial output from IO tables and energy use and prices Includes a global dataset on material extraction (physical data)

7. 7 Data sources and coverage

8. 8 Country coverage country modelsOPEC ex. IndonesiaROW

9. 9 Baseline and policy scenarios Baseline = Business as usual scenario Socio-economic and economic-environmental relations of the past will continue in the future ETR scenarios ETR tax in all EU non-ETS sectors = ETS price Aviation included in EU ETS 100% auctioning of power generation ETS permits 50% auctioning of all other ETS permits in 2013, 100% auctioning by 2020 Material taxes (5% ad valorem in 2010, 15% by 2020)

10. 10 Policy scenarios S1H High energy prices ETR with 100% revenue recycling: all revenues are used to reduce the employers social security contributions (income tax, etc) 2020 EU GHG emissions target (20%) met S3H High energy prices ETR with 100% revenue recycling International cooperation 2020 EU GHG target (30%) Emerging economies introduce a CO2 tax which is recycled via income tax reductions

11. 11 Content 1.Background: The PETRE project 2.The GINFORS Model 3.Results 4.Policy recommendations

12. 12 GDP continues to grow in all 4 regions in the baseline scenario Average annual growth rates 1995- 2000 2000- 2005 2005- 2010 2010- 2015 2015- 2020 In % (based on USD PPP, 2004) EU-273.11.92.22.52.2 OECD (non-EU)3.82.62.03.02.9 Emerging Economies 6.28.08.78.36.8 RoW3.84.95.13.72.9 World4.24.84.44.94.4 GDP development in the baseline scenario (average annual growth rates)

13. 13 Global economic weight will shift away from the old industrialised countries Shares in world GDP 20002005201020152020 In % (based on USD PPP, 2004) EU-2725.422.420.418.416.8 OECD (non-EU)41.337.533.831.229.3 Emerging Economies 27.931.437.042.046.0 RoW5.99.29.59.08.5 Shares in world GDP, baseline scenario

14. 14 Global economic growth is only marginally affected by an ETR Total value of GDP, baseline (in billion USD 2000, PPP) Absolute deviation of HS1 from baseline in 2020 Percentage deviation of HS1 from baseline in 2020 Absolute deviation of HS3 from baseline in 2020 Percentage deviation of HS3 from baseline in 2020 EU-2715,931-92-0.6-297-1.9 OECD (non-EU)27,840280.1-78-0.3 Emerging Economies 43,699530.1-688-1.6 RoW8,03360.1-266-3.3 World total94,926-30.0-1,313-1.4 GDP impacts in different world regions. 3 scenarios (in bn USD 2000, PPP)

15. 15 Exports continue to grow in the baseline scenario Average annual growth rates 2000- 2005 2005- 2010 2010- 2015 2015- 2020 In % (based on USD, 2000) EU-273.73.12.62.9 OECD (non-EU)7.75.13.12.5 Emerging Economies 5.19.35.46.1 RoW8.78.35.35.8 Export developments in different world regions, baseline scenario

16. 16 Export impacts are stronger with global cooperation Total value of exports, baseline, 2020 (PPP bn USD) Absolute deviation of HS1 from baseline in 2020 Percentage deviation of HS1 from baseline in 2020 Absolute deviation of HS3 from baseline in 2020 Percentage deviation of HS3 from baseline in 2020 EU-277972.0-60.1-0.8%-264.2-3.3% OECD (non-EU)5505.114.10.3%-29.5-0.5% Emerging Economies 11036.019.80.2%-159.2-1.4% RoW4913.97.40.2%-73.2-1.5% Export impacts in different world regions, three scenarios

17. 17 Resource-intensive sectors loose out EU Exports: impacts of scenario SH3

18. 18 Continuous trend of increasing global resource extraction Global used material extraction of different material categories, baseline

19. 19 Material extraction continues to grow Global used material extraction, 3 scenarios

20. 20 A European ETR and global cooperation can decrease material extraction Total extraction, baseline, 2020 (in billion tonnes) Absolute deviation of S1H in 2020 (in billion tonnes) Percentage deviation of S1H from baseline in 2020 Absolute deviation of S3H in 2020 (in billion tonnes) Percentage deviation of S3H from baseline in 2020 EU-256.8-0.10-1.47 %-0.24-3.6 % OECD (non-EU) 18.70.020.10 %-1.03-5.5 % Emerging Economies 31.50.010.03 %-2.23-7.1 % RoW24.2-0.02-0.08 %-0.79-3.3 % Global81.2-0.09-0.11 %-4.30-5.3 %

21. 21 CO 2 emissions remain constant in the EU but increase elsewhere Energy-related CO 2 emissions in 4 regions, baseline (bn tonnes)

22. 22 Global CO 2 emissions can hardly be reduced with EU measures alone

23. 23 CO 2 emissions can be substantially reduced with global cooperation Total CO 2 emissions in baseline, 2020 (in Mt) Total change in HS1 in 2020 (in Mt) Relative change in HS1, % in 2020 Total change in HS3 in 2020 (in Mt) Relative change in HS3, % in 2020 EU-253776.3-318.8-8.4 %-722.4-19.1 % OECD (non-EU) 10244.610.40.1 %-1829.1-17.9 % Emerging Economies 14835.52.30.02 %-2741.9-18.5 % RoW5854.90.40.01 %-141.4-2.4 % Global34526.7-272.8-0.8 %-5398.6-15.6 % Impacts of an ETR on energy-related CO 2 emissions in HS1 and HS3

24. 24 Content 1.Background: The PETRE project 2.The GINFORS Model 3.Results 4.Policy recommendations

25. 25 Combating climate change with global cooperation and global climate treaties Large emerging economies will increase their share in CO 2 emissions Unilateral action by the EU is insignificant in terms of global environmental sustainability Participation of all OECD and emerging countries Avoid carbon leakage

26. 26 CO 2 emission targets are not sufficient to address climate change Targets to reduce EU CO 2 emissions (by 20-30%) are not sufficient. Measures are needed to increase resource productivity and to limit resource consumption. Focus on CO 2 is too narrow (e.g. biofuels, nuclear energy) Address our unsustainable use of resources (root cause of climate change) Concerted action

27. 27 Shared responsibility between producers and consumers Increasing importance of embodied emissions in trade Multi-regional IO models show that our CO 2 emissions would be higher (developing countries produce on our behalf) Distribute costs to reduce GHG emissions between producers and consumers Per capita allocations or global carbon tax

28. 28 Address the conflict between economic and development goals In important EU policy strategies (Global Europe, Raw Materials Initiative) the goals of access to and supply of raw materials and natural resources prevail over the objective of their sustainable and equitable use Increase technical and financial assistance for climate change mitigation and adaptation Placing access to resource efficient technologies outside the purview if IPR restrictions into the public domain / international public buyouts of patents on such technologies

29. 29 Thank you! www.seri.at www.gws-os.de www.materialflows.net christine.polzin@seri.at lutz@gws-os.de stefan.giljum@seri.at

30. 30 Scenarios Baseline with low energy prices (LEP) LB: International energy prices: PRIMES 2007 (60 $2005/boe in 2020) GDP and CO 2 adjusted to PRIMES 2007/WEO 2007 ETS price: 18 Euro2008/t CO 2 in 2020 Baseline HB: Baseline as above but exogenous real oil price is assumed to rise after 2008 consistent with a $113/boe in nominal terms in 2010 and then to rise as in the PRIMES baseline (LEP above). Gas and coal prices follow the oil price. Energy prices consistent with IEA/WEO 2008 baseline Scenario 1: LS1 2020 EU GHG emissions target (20%) met Low energy prices (baseline LEP) ETS price = ETR tax rate ETS: 100% auctioning in 2020 Material tax (15% ad valorem tax in 2020) 100% revenue recycling: employers social security contributions (ETS material tax and carbon tax on corp. rev)/income tax (carbon tax on hh) No further policy measures (RES, efficiency package etc.)

31. 31 Scenarios (part II) Scenario 2: HS1 2020 EU GHG 20% target met High energy prices CO2 price: 68 Euro 2008/t Scenario 3: HS2 As Scenario 2 10% recycling in low carbon technologies (RES and building insulation) CO2 price: 61 Euro 2008/t Scenario 4: HS3 As Scenario 2 International cooperation 2020 EU GHG emissions target (30%!) met CO2 price: 184 Euro2008/t (OECD) CO2 price: 46 Euro2008/t (emerging economies)

32. 32 Shares of old industrialised countries in global extraction will decrease Global shares of used material extraction for country groups, baseline