June GTAP Conference Purdue University Welfare Cost for Europe of Non Participation in the Market for Tradable Permits and Comparative Efficiency of Corrective Policies towards Energy Intensive Sectors Alain Bernard and Marc Vielle

June GTAP Conference Purdue University Article 3 of the Kyoto Protocol “Any such trading shall be supplemental to domestic actions for the purpose of meeting quantified emission limitation and reduction commitments under that Article”

June GTAP Conference Purdue University French National Program of Climate Change Policy, MIES 2000 Tradable permits...“may only be supplemental to domestic efforts, which must represent the bulk in fulfilling the commitments”

June GTAP Conference Purdue University French Committee of Sustainable Growth “the trade of permits, in a country that would constrain its economy and population to a severe emissions abatement in order to get revenue from the sale of permits, could aggravate social inequalities”

June GTAP Conference Purdue University Issues  Welfare cost of non participation by EU to the market of tradable permits  Implications for Energy Intensive Sectors (EIS)  Assessment of various policies aimed at compensating distortions in EIS between Europe and other Annex B countries

June GTAP Conference Purdue University Plan Overview of the model GEMINI-E3/GemWTraP The Benchmark Scenario: Annex B Tradable Permits Non Participation of EU and No Corrective Measures Corrective measures for EIS Summary of Results

June GTAP Conference Purdue University GEMINI-E3 : A Worldwide Dynamic General Equilibrium Model 7 Regions USAEnergy Exporting Countries Japan Former Soviet Union France Other countries of European Union Rest of the World 8 Sectors/Commodities Coal Crude Oil Natural Gas Refined Oil Products Electricity Agriculture Energy Intensive Sectors Other Goods and Services Period of simulation yearly, from 2000 to 2040

June GTAP Conference Purdue University GEMINI-E3/GemWTraP Main Characteristics Total Price Flexibility Detailed Representation of Indirect Taxation Measure of Welfare Cost of Policies and Components and of course: Armington Assumption

June GTAP Conference Purdue University Measure of Welfare Cost and Components S =  R- CVI Total Welfare Gain Variation of Income Compensative Variation of Income GTT =  EXP  P EXP -  IMP  P IMP   P IMP  IMP -  P EXP  EXP = -DWL + GTT Deadweight Loss of Taxation Gains from Terms of Trade

June GTAP Conference Purdue University Definition of the Scenarios: Benchmark versus Non participation of EU Tradable Permits between Annex B Countries Tradable Permits between Annex B Countries other than European Union  Domestic Tax in European Union countries After 2010 : Kyoto Forever

June GTAP Conference Purdue University Price of permits with and without European Union In $ 1990 per ton of carbon

June GTAP Conference Purdue University EU Tax versus Price of International Permits Price of carbon in $ 1990 per ton

June GTAP Conference Purdue University Welfare Cost for Annex B and non Annex countries (in % of Households’ Final Consumption)

June GTAP Conference Purdue University Welfare Cost for Annex B and non Annex countries (in % of Households’ Final Consumption)

June GTAP Conference Purdue University Welfare Cost for Annex B and non Annex countries (in % of Households’ Final Consumption)

June GTAP Conference Purdue University Welfare Cost for Annex B and non Annex countries (in % of Households’ Final Consumption)

June GTAP Conference Purdue University Components of Welfare Cost for European Countries Difference between Participation and Non Participation (in Billions of F90 or ECU90)

June GTAP Conference Purdue University Change in Production for EIS ( in % w.r.t. BaU, in 2040) Participation of EU Non participation of EU France -0.4% -8.9% EU % -10.9% USA -2.5% -0.1% Japan -2.2% -0.4% FSU -31.5% -15.5% EEC 4.2% 6.5% ROW 2.2% 3.6%

June GTAP Conference Purdue University EU Corrective Policies for EIS  Exoneration of Carbon Tax  Mitigation of Carbon Tax (EU tax = price of permits)  Access to Permits for EIS  Carbon Tax Rebating  Implementation of Duties for non EU Imports

June GTAP Conference Purdue University Comparisons of Carbon Tax in France Year 2040 (1990 $ per ton of Carbon)

June GTAP Conference Purdue University Comparisons of Carbon Tax in EU11 Year 2040 (1990 $ per ton of Carbon)

June GTAP Conference Purdue University Tradeoff between Welfare and EIS Production (France) Welfare Loss (in % of HFC) Change in EIS production

June GTAP Conference Purdue University Tradeoff between Welfare and EIS Production (EU11) Welfare Loss (in % of HFC) Change in EIS production

June GTAP Conference Purdue University Main Teachings  Non participation to the market of permits is costly for EU  Concerning other countries: Net Sellers are losers Net Buyers are winners  Concerning leakage in European EIS: - all considered policies have approximately the same efficiency - some increase the welfare cost, some on the contrary alleviate the burden

June GTAP Conference Purdue University Appendix Share of Energy in the Cost of Production: EIS versus GDP (1990)

June GTAP Conference Purdue University Share of Energy in the Cost of Production for some EIS (France, 1990)