1. Presented by Belay Fekadu, Farzad Taheripour, Patrick Georges, David Mayer-Foulkes, Marianne Aasen, Hyun-Sik Chung, Kenatro Katsumata, Christa Clapp GTAP_E

2. 2 Presentation Outline GTAP Energy Application (GTAP-E) –Theoretical Structure –Three experiments: Emission quota with no emission trading Emission quota with emission trading among annex 1 (USA, JPN,FSU,EU, RoA1) Emission quota with worldwide emission trading –New experiments: Annex 1 without USA Emission targets Energy Substitution possibilities Carbon tax and tax replacement effect

3. 3 GTAP Energy Application (GTAP-E) It focuses on the economic and environmental impacts of energy-environmental policies GTAP-E follows the standard GTAP structure with some modifications and additions such as: –Emission accounting –Emission permits and emission trading mechanisms –Carbon taxation –Production structure and substitution between energy and capital

4. 4 Main Results of Three Existing Experiments CountryNo Emissions Trading Emission trading among annex 1 countries Worldwide Emission trading % Reduction in emissions 1997 USD/tonne of carbon % Reduction in emissions 1997 USD/tonne of carbon % Reduction in emissions 1997 USD/tonne of carbon USA-36126-2677-1229 EU-22139-1477-629 EEFSU50-2775-1329 JPN-32222-1677-629 RoA1-36171-2177-929 EEx4030-729 CHIND1010-3328 RoW4040-829

5. 5 Annex 1 without USA

6. 6 Emissions targets

7. 7 Energy Substitution Possibilities

8. 8 Tax Replacement Implications Environmental regulation in the presence of distortionary taxes: –Environmental taxes may improve welfare, if tax revenues are used to cut pre existing distortionary taxes (Tullock, 1967). Environmental regulation in an open economy: –Environmental taxes generates a term of trade effect. The terms of trade effect can be either positive or negative depends on the demand and supply elasticities (. Krutilla (1991).

9. 9 Tax Replacement Implication (Cont’d) Revenue Recycling Effect P X PMC PMC + t X1X2Q*Q* QL P Pc Deadweight loss of preexisting tax Pollution tax and government revenuesUsing pollution taxes to cut the preexisting tax The government revenues Pp

10. 10 Tax Replacement Implications (Cont’d) Results WELFARE Carbon Tax Carbon Tax + Import Tariff alloc_A1 tot_E1 alloc_A1 tot_E1 1 USA-358.59978.4546.12-4339.2 2 EU1065293.871244.641276.71 3 EEFSU-1.37-121.02-6.13-86.2 4 JPN205.4207.98410.95977.89 5 RoA157.3-307.29111.9890.32 6 EEx-9.76-1289.61137.4-275.4 7 CHIND56.5735.55190.62314.15 8 RoW95.35201.22490.551230.9 Total1109.9-0.852626.04-10.83

11. 11 Tax Replacement Implications (Cont’d) Results gco2tCarbon TaxCarbon Tax + Import Tariff 1 USA-5.3-5.21 2 EU0.210.20 3 EEFSU0.10.10 4 JPN0.190.17 5 RoA10.330.32 6 EEx0.210.17 7 CHIND0.070.06 8 RoW0.210.18

12. 12 Tax Replacement Implications (Cont’d) Results

13. 13 Concluding Comments