/
Issues in Carbon Pricing Issues in Carbon Pricing

Issues in Carbon Pricing - PowerPoint Presentation

danika-pritchard
danika-pritchard . @danika-pritchard
Follow
438 views
Uploaded On 2017-06-13

Issues in Carbon Pricing - PPT Presentation

Harvard Electricity Policy Group Scottsdale AZ December 2016 Presented by Ross McKitrick University of Guelph rossmckitrickcom 1 Summary Secondbest analysis shows carbon tax unlikely to improve welfare ID: 559016

mac rossmckitrick tax unit rossmckitrick mac unit tax case emissions ecs carbon iwg scc estimates problem distribution inconsistent model

Share:

Link:

Embed:

Download Presentation from below link

Download Presentation The PPT/PDF document "Issues in Carbon Pricing" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.


Presentation Transcript

Slide1

Issues in Carbon Pricing

Harvard Electricity Policy GroupScottsdale AZDecember 2016Presented by:Ross McKitrickUniversity of Guelph

rossmckitrick.com

1Slide2

Summary

“Second-best” analysis shows carbon tax unlikely to improve welfareEmpirical evidence on model parameters & realistic implementation issues undermine case even moreWe should re-think carbon pricing along the lines of monetary policyrossmckitrick.com

2Slide3

First-Best Model

rossmckitrick.com3

Emissions

$/unit

MAC = (Private) Marginal Abatement Costs

 Slide4

First-Best Model

rossmckitrick.com4

Emissions

$/unit

MAC

MD = Marginal Damages

 

 

 Slide5

Second-Best Case

rossmckitrick.com5

Emissions

$/unit

MAC

P

MAC

S

=

Social Marginal Abatement

Costs

MD

 

 

 Slide6

Second-Best Case

rossmckitrick.com6

Emissions

$/unit

MAC

P

MD

 

 

 

MAC

SSlide7

Second-Best Case

rossmckitrick.com7

Emissions

$/unit

MAC

P

MD

 

 

 

MAC

SSlide8

Second-Best Case

Taking into account other distortions in tax system

where

MCPF = Marginal Cost of Public Funds

~ 1.4 or so

 

rossmckitrick.com

8Slide9

Tax Revenues

This is the outcome with optimized taxes and full revenue recyclingWhat if neither assumption holds?Command-and-Control or Tradable QuotasNon-optimal tax systemrossmckitrick.com

9Slide10

Second-Best Case

rossmckitrick.com10

Emissions

$/unit

MAC

P

MAC

S

MD

 

 

 Slide11

Third-Best Case

rossmckitrick.com11

Emissions

$/unit

MAC

P

MAC

S

MD

 

 

 Slide12

Third-Best Case

rossmckitrick.com12

Emissions

$/unit

MAC

P

MAC

S

MD

 

 

 Slide13

Third-Best Case

rossmckitrick.com13

Emissions

$/unit

MAC

P

MAC

S

MD

 

 

B

 Slide14

Threshold Value

B = cost of first unit of emission reductions if tax system is sub-optimal +/orCarbon tax is not sole instrument +/orPolicy is not revenue-raising/revenue neutral Bovenberg and Goulder (1996): B

= $50/tonneIWG (2013) MD = $40/tonne

B

>

MD

: Carbon tax is welfare-reducing

even if there is a positive externality

rossmckitrick.com

14Slide15

Looking closer at SCC

SCC estimates come from IAM black boxesDICE (Nordhaus), FUND (Tol), PAGE (Hope)Yield MD or Social Cost of Carbon (SCC)Depend heavily on Equilibrium Climate Sensitivity (ECS) parameter

rossmckitrick.com

15Slide16

ECS

Small uncertainty in feedback rate yields big spread and fat upper tail

rossmckitrick.com

16Slide17

Inter-Agency Working Group (IWG)

Used Roe-Baker (2007) ECS distribution, ran Monte Carlo analyses to generate SCC distributionGenerated mean SCC as of 2015 of $38 (@3.0%)

rossmckitrick.com

17Slide18

Problem #1: Time scale of upper tail inconsistent with damage path

Roe and Bauman (2013): Adjustment time goes up with square of ECSIAMs do not take this into account and use physically-impossible time scales for high sensitivity casesrossmckitrick.com18Slide19

Problem #2: Empirical

ECS estimates inconsistent with IWG distribution

rossmckitrick.com

19Slide20

Problem #2: Empirical ECS estimates inconsistent with IWG distribution

rossmckitrick.com

20Slide21

Problem #2: Empirical ECS estimates inconsistent with IWG distribution

rossmckitrick.com

21Slide22

Problem #2: Empirical ECS estimates inconsistent with IWG distribution

DICE

rossmckitrick.com

22Slide23

Lewis & Curry 2015

Used IPCC forcings post-1750 and updated surface and ocean dataConditioned ECS on estimated OHU efficiencyResults stable across numerous different start- and end-datesECS best estimate 1.64 C [5—95%] range of 1.05 – 4.05 C

rossmckitrick.com

23Slide24

FUND & DICE

We used EPA’s Matlab code Replicated IWG results

rossmckitrick.com

24Slide25

Avg of DICE and FUND

Avg SCC Estimate out to 2050rossmckitrick.com25Slide26

My (ideal) alternative

Temperature-indexed carbon taxSimple linear function of satellite-derived atmospheric temperature measureIf warming happens, tax will go up, and vice versaFutures market for tax exemption certificatesSequence of prices would reveal market expectation of warmingrossmckitrick.com

26Slide27

Futures market

The market will become the world’s most powerful climate modelWe can show these forecasts are unbiased and use all available informationrossmckitrick.com

27Slide28

Conclusions

Real-World considerations make it unlikely carbon regulations can pass Cost-Benefit testEven a carbon tax is unlikely to be a net benefitSCC estimates are likely biased high due to skewed ECS distributionIn FUND model CO2 is not necessarily even a net negative externalityI propose re-thinking carbon pricing using monetary policy as an analogue

rossmckitrick.com

28