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Environmental Regulation under Market Power: The Impact of Emission Trading on Optimal Energy taxes. Background Literature Theoretical Model > optimal tax (with & without abatement) Computable Model and Energy Market Data >effect on producers rents

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Presentation Transcript
slide1
Environmental Regulation under Market Power:

The Impact of Emission Trading on Optimal Energy taxes

  • Background
  • Literature
  • Theoretical Model
  • > optimal tax (with & without abatement)
  • Computable Model and Energy Market Data
  • >effect on producers rents
  • > welfare effect of existing tax (S‘)
  • > welfare effect of optimal variation of existing tax
  • Summary

Department of Economics

CAU-Kiel

1

slide2
Background & Motivation

Climate change policy in Germany:

Energy Tax since 1998

(i.e. tax on electricity consumption, ~ 2 cent/kWh for households)

+

European CO2–Emission Trading Program in 2005

(~500 Mio. t CO2 for energy sector in 2005)

compatibility of instruments?

Department of Economics

CAU-Kiel

2

slide3
Theoretical Model

Pigou (1938), - Perfect Competition

Buchanan (1969), Barnett (1980) - Monopoly

Ebert (1992) symmetric Oligopoly

Requate(1993) asymmetric Duopoly (Bertrand/Cournot)

optimal tax on emission

optimal output tax with emission trading?

Department of Economics

CAU-Kiel

3

theoretical model

Theoretical Model

Profitfunctions of the k firms:

(1)

total production,

ecotax

emission of firm i

allowance price

Properties of the cost functions:

Department of Economics

CAU-Kiel

4

theoretical model1

Theoretical Model

FOCs of the firms:

(2)

(3)

comparative static effects w.r.t.

< 0

if (4)

< 0

Department of Economics

CAU-Kiel

5

foc of the government w r t 5 plugging in the focs of the firms lead to the optimal tax rate 6
Theoretical Model

FOC of the government w.r.t.

(5)

plugging in the FOCs of the firms lead to the optimal tax rate

(6)

Department of Economics

CAU-Kiel

6

theoretical model2

Theoretical Model

Applying comparative statics we get:

(7)

or

.

Hence, we can write equivalently

(6‘)

Department of Economics

CAU-Kiel

7

slide8
Theoretical Model

Scenarios

Department of Economics

CAU-Kiel

8

slide9
Theoretical Model: Results
  • Previous results can be obtained if two further assumptions are made:
  • A: Demand is not too convex
  • B: Marginal damage is greater then the price of emission permits.
  • The sign of the optimal tax depends on
  • A: The firm`s cost structures
  • B: Slope of demand curve and
  • C: Noninternalized damage

Department of Economics

CAU-Kiel

slide10
Theoretical vs. Computable Model
  • Single demand sector vs. Sectoral disaggregation
  • (differentiated electricity tax, VAT)
  • Abatement on firm level vs. Industrial abatement
  • k symmetric Cournot-players vs. four asymmetric players with competitive fringe
  • Ellersdorfer at al. (2001)

Department of Economics

CAU-Kiel

profit function of firm i foc of firm i 7
Computable Model

Profit function of firm i

Foc of firm i

(7)

Department of Economics

CAU-Kiel

11

slide12
Computable Model:

Annual Demand

  • reference demand of four heterogeneously taxed sectors:
  • HH: 2,04 cent/kWh, DNLGEW: 1,63 cent/kWh , IND1: 1,22 cent/kWh, IND2: 0,0 cent/kWh
  • homogeneous elastiscity of demand : 0,6

Department of Economics

CAU-Kiel

12

slide14
The Computable Model:

Production Capacity of the Players

Department of Economics

CAU-Kiel

14

slide15
Computable Model
  • Firms react asymmetrically on the electricity tax in output and emission
  • powerful agents (RWE, e.on) react
  • less price elastic
  • Vattenfall has got a flatter response function
  • and reacts most price elastic
  • The return on the firms capital is asymmetrically effected
  • Welfare effect and optimal tax?

Department of Economics

CAU-Kiel

15

slide16
Computable Model:

Welfare Effect of Electricity tax

Department of Economics

CAU-Kiel

16

slide17
Computable Model:

Welfare Effect of a Variation of Electricity tax

Department of Economics

CAU-Kiel

17

slide18
Computable Model:

Welfare Effect of Optimal Electricity Tax

Department of Economics

CAU-Kiel

18

summary of findings
Optimal tax rate

Theoretic Model

Computable Model

Marginal Damage (Lit)

Summary of Findings

Department of Economics

CAU-Kiel

conclusion
Conclusion
  • The results seem to suggest an elimination of the german electricity tax
  • Other aspects might outweigh climate target,
  • e.g. energy efficiency in consumption
  • Permit market competitive or monopolisitc bottle neck? (allocation of permits?)
  • Compensation of tax revenue (social insurance system?)
  • Effect of multi regulation ?

Department of Economics

CAU-Kiel

slide21
Outlook: Multiregulation of Firms

two climate policies vs. four policies in 2005:

>feed-in tariffs for

renewables

combined heat and power production

additional environmental regulations might further decrease the effectivness of ecological taxes

> shift of welfare effect

Department of Economics

CAU-Kiel

21

3 das quantitative modell weitere optimalit tsbedingungen
3. Das quantitative Modell Weitere Optimalitätsbedingungen
  • Produktionsgrenze ,
  • Produktion ,
  • Markträumung ,
  • Marktanteil ,
  • Nichtnegativitätsbedingungen .

Department of Economics

CAU-Kiel

berechnung der wohlfahrtseffekte wohlfahrtsdifferenz zweier szenarien
Berechnung der Wohlfahrtseffekte(Wohlfahrtsdifferenz zweier Szenarien)
  • Wohlfahrt = Bruttorente(BR) – Kosten(K) - Schaden(D)
  • Grenzschaden (konstant):

Department of Economics

CAU-Kiel

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