1. Effects of Energy Prices on Mexican Households
Araceli Ortega Díaz
Associate Professor , ITESM
European Meeting of the International Microsimulation Association September 2016, Budapest, Hungary
Research Assistant : Perla Arellano.

2. Project Climate Change and Poverty Mitigation CliMiP partners…
Funding by the Volkswagen Stiftung, Compagnia di San Paolo and Riksbanken Jubileumsfond under the “Europe and the Global Challenges” program is gratefully acknowledged.

3. Background
Climate change mitigation by curbing greenhouse gas (GHG) emissions is one of today’s biggest global challenges.
Curbing GHG emissions in developing countries may require the implementation of policies with potentially adverse effects on economic growth and hence poverty reduction.
Some mitigation policies are equally likely to lead to win-win situations.
Research on the precise impacts of mitigation policies on growth and poverty reduction in developing countries is sparse.

4. Project Methodology
To bridge the gap, this multi-disciplinary project combines approaches from three academic traditions WP1-political science, WP2-economics and WP3 international relations.
In particular WP2: Assess poverty and distributional impacts of mitigation policies, using:
incidence-focused general equilibrium models,
simulation models based on micro data,
a combination of the two.
Today´s presentation

5. Framework
OBJECTIVE: Understanding the trade-offs and/or synergies between climate policy, fiscal and economic policies on household welfare.
CARBON TAX: The risk that the carbon tax may permanently increase the costs and prices of fuels and energy, is a because it may create loss of competitiveness and productivity, causing production slow down and decrease economic growth, may generate job losses and increase poverty; that is why the iron and industrial sectors have made positions against this policies saying there is a lack of fiscal and financial incentives for renewable energies, the carbon tax revenue for the government has not been clearly define how will be spent or if it would in some cases help those industries that need a boost to increase their investment in renewable energies. Households know little about it but bear the costs.
PERIOD:
DATA: Income and Expenditure Household Surveys (ENIGH).

6. Carbon tax effects

7. Carbon Tax
The tax rate is estimated according with the official tax which was enacted since 2014 when Mexican Congress approved a fiscal reform that includes a carbon tax on CO2 emissions from manufacturing, selling and burning fossil fuels in order to discourage activities which harm the environment, improve air quality and reduce respiratory illness (DOF, 2013b).
The justification for this tax was to internalize the social cost of the negative externalities of CO2 emissions from fossil fuels and incentive the use of clean renewable energies.
Fossil fuels
2014
2015
Units
Propane
5.91
6.15
Cents per liter
Butane
7.66
7.97
Gasoline and aviation gasoline
10.38
10.81
Jetfuel and other kerosene
12.4
12.91
Diesel
12.59
13.11
Fuel oil
13.45 14
Petroleum coke
15.6
16.24
Pesos per tons
Cooking coal
36.57
38.09
Mineral coal
27.54
28.68
Other fossil fuels
39.8
41.45
Source: Published in the Mexico Federal Official Gazette (DOF), December 11th, 2013; and December 22th, 2014.
Source: Published in the Mexico Federal Official Gazette (DOF), December 11th, 2013; and December 22th, 2014.

8. Estimating the elasticities of energy prices
Based in the methodology of Banks, Blundell and Lewbel, elasticities of energy related products and services are estimated for poor and non-poor population in Mexico from 1992 to 2014.
The motivation for using their model of Quadratic Almost Ideal Demand System comes from observing the consumption of household and total expenditures do not follow a linear path.
This study used household surveys ENIGH, which is biannual since 1992, with two exceptions of adding years 2005 and 2015 to match the middle population census, but both severely criticized.
Calculations were made using 30 and finally 10 energy products that were consistent across the period analyzed.
When prices where not available, the nearest neighbors price of the Municipality was imputed.

10. The measure of poverty used in this paper to distinguish between poverty status is the patrimony poverty line which counts the number of people who even when expending all their income, cannot afford the food basket, health, education, dressing, housing and transport (CONEVAL, 2015).

13. Table . Categories of 30 energy goods changing across ENIGHs
Source: Authors calculation

14. Price Elasticity of Electricity
Source: Authors calculation

15. Price Elasticity of Petroleum
Source: Authors calculation

16. Price Elasticity of Gas
Source: Authors calculation

17. Price Elasticity of Gasoline, Diesel and Gas
Source: Authors calculation

18. Estimation for the period 2008-2014 (11 consumption goods).
From 2008 ENIGH changed and implemented a module to make the simple representative for poverty measurement for the 32 Federal entities.

19. Price Elasticity of Electricity
Source: Authors calculation

20. Price Elasticity of Magna Fuel
Source: Authors calculation

21. Price Elasticity of Premium Fuel
Source: Authors calculation

22. Price Elasticity of Diesel
Source: Authors calculation

23. Summary
It is observed that price elasticities of energy goods and services like electricity, when calculated for poor and non-poor household do not vary significantly, and further research should include more socioeconomic variables, and in the case of regulated good like gas and electricity, other econometric methods should be pursued for comparison.
It takes too much computational time.
We made some preliminary impact of varying the price in the whole economy and see what we should expect.

24. indirect effect (fuel input)
The main results suggest that the highest impacts on prices are in the sectors coke, refined petroleum and nuclear fuel; air transport; and inland transport.
Economic Sector
Price Effect (%)
Direct or
indirect effect (fuel input)
Coke, Refined Petroleum and Nuclear Fuel
0.529
Direct
Air Transport
0.202
Indirect (Jetfuel)
Inland Transport
0.112
Indirect (Diesel, Gasoline)
Electricity
0.080
Indirect (Coke, Refined Petroleum and Nuclear Fuel)
Public Admin and Defense, Compulsory Social Security, and Extraterritorial and International Organizations
0.052
Other Non-Metallic Minerals
0.046
Source: Authors calculation

25. The rural households are more affected by the carbon tax than the urban ones. With respect to the distributional effects of the carbon tax, it is found that the tax is regressive in urban strata.
Description h1 h2 h3 h4 h5 h6 h7 h8
Household price index
0.057
0.060
0.066
0.053
0.055
0.046
Disposable income
0.013
0.017
0.018
0.020
0.021
0.015
Total consumption
-0.041
-0.039
-0.044
-0.043
-0.033
-0.032
-0.030
-0.029
Saving
-0.018
-0.016
Welfare
-0.027
Source: Authors calculation

26. The carbon tax collection is 4,212. 5 million pesos. This is 0
The carbon tax collection is 4,212.5 million pesos. This is 0.7% lower than the potential tax collection, because the consumption of fossil fuels decrement. The government revenue increases by 0.33%.
Source: Author´s using (SHCP, 2014)

27. Future steps
Before proceeding to include rural and urban sector, there should be a welfare analysis of the expenditure elasticity that we have not considered yet.
And or, raising prices and recalculate.
Feedback and ideas welcome.

28. THANK YOU