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ENV GLOBAL FORUM OCT 2016 - Session 4 - A. Dechezleprêtre

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ENV GLOBAL FORUM OCT 2016 - Session 4 - A. Dechezleprêtre
"How can environmental policies be designed to be compatible with (green) economic growth"

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ENV GLOBAL FORUM OCT 2016 - Session 4 - A. Dechezleprêtre

  1. 1. How can environmental policies be designed to be compatible with (green) economic growth? Evidence from firms and industries Antoine Dechezleprêtre OECD Global Forum on Environment 2016
  2. 2. Overplayed competitiveness concerns influence policy design • Environmental policies can lead to small negative effects on trade, employment, plant location and productivity – In pollution- & energy-intensive, trade-exposed sectors • These impacts are small compared to other determinants of trade and investment location – Impacts overplayed, but firms legitimately voice their concerns • In fear of potential adverse competitiveness effects, recent climate policies shield industrial sectors from full regulatory costs
  3. 3. The perverse effects of EU ETS free allocation rule: the cement industry Observed cement installations by activity level Theoretical distribution 0 10 20 30 40 50 Number of installations 2012 - LD Countries 0 10 20 30 40 50 Number of Installations 2012 CF - LD Countries Ø5.8 Mt excess clinker production in 2012 (= 5.2 Mt CO2 emissions) Activity level thresholds: free allocation reduced by 50% (resp. 75%) if production falls by 50% (resp. 75%)
  4. 4. Worrying consequences • CO2 intensity of the European cement sector +5% 2011-2014! – EU 2050 objective: -80% CO2 emissions • Cumulative surplus: 450M credits (=tonnes CO2) for the cement sector • Free allocations are received by large, carbon- intensive incumbent firms • SMEs who have developed commercially viable low-carbon cements (e.g. Ecocem, EMC, CarbonCure, BanahCEM) get nothing
  5. 5. Designing policies compatible with economic performance • Worrying about losers is legitimate ØLevel the playing field at the consumption level (eg consumption tax), without creating perverse incentives that discourage efficiency and are incompatible with long term objectives • Growth-compatible environmental policies need to encourage innovation ØSupport new tech development, including by new entrants, through innovation policies ØProvide stable pollution pricing mechanisms
  6. 6. European carbon market introduced Regulated companies Unregulated companies 0 20 40 60 80 Low-carbonpatentfilings 2000 2002 2004 2006 2008 Year Regulated Unregulated Source: Calel & Dechezleprêtre, 2016. Carbon pricing encourages low-carbon innovation
  7. 7. !0.3% !0.2% !0.1% 0% 0.1% 0.2% 0.3% 0.4% 0.5% 0.6% Electricity%% dirty% Car%% dirty% Biotechs% Electricity% clean% Car% clean% Robot% IT% Nano% 3D% Baseline = average technology
  8. 8. Source: author’s calculations from EPO’s PATSTAT database Reversing the dangerous decline in global low-carbon innovation 20 40 60 80 100 Oilprice(2015$) 3% 4% 5% 6% Shareofclimate-relatedinventions 1985 1990 1995 2000 2005 2010 2015 Year Low-carbon innovation Crude oil price 20 40 60 80 100 Oilprice(2015$) 3% 4% 5% 6% Shareofclimate-relatedinventions 1985 1990 1995 2000 2005 2010 2015 Year Low-carbon innovation Crude oil price

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