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Insights from the COMETR projectfor China

COMpetitiveness effects of Environmental Tax Reforms

Prof. Mikael Skou Andersen, Dept. of Policy Analysis, NERI, Aarhus University

COMETR is a Specific Targeted Research Project (STREP) of the ‘Scientific Support to Policies’ initiative under the EU’s Sixth Framework Programme for Research (FP6) 2004-2007

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COMETR partners

• Cambridge Econometrics• Economic and Social Research Inst., Dublin• Institute for Economic and Environmental Policy, Prague• Policy Studies Institute, London• Vienna Institute for International Economics• NERI, Aarhus University (coordinator)

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Global CO2-emissions and China

• USA: 20%• China: 20%• EU: 12%• Russia: 6%• Japan: 4%

• China: Doubling projectedby IPCC for 2025 was a reality in 2007

Kina

0

1

2

3

4

5

6

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

år

Gig

aton

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• Five-year plan (2006-2010) aims at a quadrupling of GDP before2020, while energy consumption may only double

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• Ferrous industries and cement can deliver 2/3 of IEA-stipulated industrial energy savings for China

• Per year: 113 Mtoe and 0,3 Gton CO2

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Environmental tax reform (ETR)revenue as a share of GDP (1995-2003)

UK (CCL) 0,07%Sweden 0,92%

Netherlands 0,47%Germany 0,84%

Finland 0,59%Denmark 1,08%

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Mitigation for energy-intensive industries

Sweden and Finland: – cap on tax liability (SE<0,8 % sales value; FI<3,7% value added)– above threshold: minimum tax rates of EU Energy Taxation Directive

Great Britain and Denmark: – agreements and commitments as condition for reduced tax rates (up to

80%) in energy-intensive industries– recycling of revenue for energy efficient technology (both standard

solutions and tailor-made upgrade of production technology)

Germany and Netherlands:– DE: peak tax adjustment conditional on self-commitment; 40 per cent

reduction of ”extra” tax burden– NL: above threshold (1 mill. m3 gas or 10 mill. kWh) only minimum tax

rates of EU Energy Taxation Directive

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Ferrous industries: real carbon-energy tax burden

0

0,2

0,4

0,6

0,8

1

1,2

1,4

1,6

1,8

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

euro

pr G

J

DKFINGERNLSLOVSWUK

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Cement: real carbon-energy tax burden

-0,2

0

0,2

0,4

0,6

0,8

1

1,2

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

euro

pr

GJ

DKFINGERNLSLOVSWUK

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-20%

0%

20%

40%

60%

80%

100%

Denmark

Finland

Germany

Netherlands

Slovenia

Sweden

Great Britain

Ferrous industries: Net Energy Input

OtherHeat (sold)ElectricityNatural gasGas /diesel oilFuel oilCokeCoal

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0

5

10

15

20

25

30

35

40

45

50

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

GJ

per 1

000

€ ou

tput Denmark

FinlandGermanyNetherlandsSloveniaSwedenUK

Sweden: energy taxes on industry abolished and CO2-tax reduced in mid-1990’s

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no real productivity gains due to fierce price competition

Energy productivity of ferrous industries

0,0

1,0

2,0

3,0

4,0

5,0

6,0

7,0

8,0

9,0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

euro

cent

in v

alue

add

ed p

er M

J

DenmarkFinlandGermanyNetherlandsSloveniaSwedenUK

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-20%

0%

20%

40%

60%

80%

100%

Denmark

Finland

Germany

Netherlands

Slovenia

Sweden

Great Britain

Cement: Net Energy Input

OtherBiofuelWasteHeat (sold)ElectricityNatural gasGas /diesel oilFuel oilCokeCoal

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Energy intensity of cement

0

10

20

30

40

50

60

70

80

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

GJ

per 1

000

€ ou

tput Denmark

FinlandGermanyNetherlandsSloveniaSwedenUK

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Energy productivity in cement

0,0

0,5

1,0

1,5

2,0

2,5

3,0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

euro

cent

in v

alue

add

ed p

er M

J

DenmarkFinlandGermanyNetherlandsSloveniaSwedenUK

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Environmental agreements

Partial reimbursement of tax requires:• Binding energy saving target• Energy management system

– with energy audit, staff training, procurementpolicies and annual progress report

RESULT: 60 per cent higher energy savingsthan in companies subject to tax only(Bjørner and Togeby, 1999)

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Green tax switch: real tax burdenper cent of gross operating surplus (GOS)

Denmark

-6,0

-5,0

-4,0

-3,0

-2,0

-1,0

0,0

1,0

2,0

3,0

glass cement steel non-ferrous

per c

ent o

f GO

S

Tax burden value of lowered employers SSC tax induced energy saving sum

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Effect of ETR on GDP

-0,5

0

0,5

1

1994 1997 2000 2003 2006 2009 2012

Denmark

Netherlands

Slovenia

UK

GermanyFinland

Sweden

Note(s) : % difference is the difference between the base case and the counterfactual reference case.

Source(s) : CE.

% difference

p14

Slide 20

p14 ps; 27-09-2006

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What carbon tax provides a level playingfield for energy-intensive industries ?• Cement and ferrous industries are taxed effectively at 0,1-0,3

€/GJ or 1-3 €/tCO2 in Europe’s ETR countries (net of exemptions)

• Tax rates in comparison– market exchange rate: 10 RMB ~ 1€– real exchange rate (purchasing power parity; PPP);

2,5 RMB buys what 1€ does (World Bank, 2005)

• China carbon tax arrangement for energy-intensive sectors:– China tax rate of 3-8 RMB/tCO2 (net of exemptions) would match

effective European tax rates of 1-3 €/tCO2– with environmental agreements (subject to penalty) and recycling

of 20% of revenue for technological upgrade and innovation

For non-energy intensive sectors a standard CO2 tax rate of 50 RMB could match CO2 price of 20 € in Europe

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Cumulative CO2 emissions

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Mikael Skou Andersen and Paul Ekins, eds.Carbon-energy taxation: lessons from Europe,Oxford University Press 2009 (in press)

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