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Background Literature Theoretical Model > optimal tax (with & without abatement)

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

christophe-alden
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Background Literature Theoretical Model > optimal tax (with & without abatement)

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  1. 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

  2. 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

  3. 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

  4. 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

  5. Theoretical Model FOCs of the firms: (2) (3) comparative static effects w.r.t. < 0 if (4) < 0 Department of Economics CAU-Kiel 5

  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

  7. Theoretical Model Applying comparative statics we get: (7) or . Hence, we can write equivalently (6‘) Department of Economics CAU-Kiel 7

  8. Theoretical Model Scenarios Department of Economics CAU-Kiel 8

  9. 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

  10. 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

  11. Computable Model Profit function of firm i Foc of firm i (7) Department of Economics CAU-Kiel 11

  12. 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

  13. Computable Model: Marginal Costs and Marginal Emissions Department of Economics CAU-Kiel

  14. The Computable Model: Production Capacity of the Players Department of Economics CAU-Kiel 14

  15. 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

  16. Computable Model: Welfare Effect of Electricity tax Department of Economics CAU-Kiel 16

  17. Computable Model: Welfare Effect of a Variation of Electricity tax Department of Economics CAU-Kiel 17

  18. Computable Model: Welfare Effect of Optimal Electricity Tax Department of Economics CAU-Kiel 18

  19. Optimal tax rate Theoretic Model Computable Model Marginal Damage (Lit) Summary of Findings Department of Economics CAU-Kiel

  20. 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

  21. 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

  22. 3. Das quantitative Modell Weitere Optimalitätsbedingungen • Produktionsgrenze , • Produktion , • Markträumung , • Marktanteil , • Nichtnegativitätsbedingungen . Department of Economics CAU-Kiel

  23. Berechnung der Wohlfahrtseffekte(Wohlfahrtsdifferenz zweier Szenarien) • Wohlfahrt = Bruttorente(BR) – Kosten(K) - Schaden(D) • Grenzschaden (konstant): Department of Economics CAU-Kiel

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