Climate policy and competitiveness: A North American perspective from CGE models Nic Rivers Porter Hypothesis at 20 Sympos...
Computable general equilibrium models are widely used  <ul><li>Much applied research exploring climate change policy, comp...
Typical findings: climate change policy and competitiveness <ul><li>Market-based climate policy is likely to increase prod...
Competitiveness impacts of HR.2454 in the US Source: Interagency Report on HR.2454, 2009 US$20/tCO2 allowance price Impact...
Competitiveness impacts of 20% reduction in GHG by 2020 in Canada Source: Rivers, 2010,  Energy Economics . Impact of allo...
CGE models and the Porter Hypothesis <ul><li>Most disaggregate applied CGE models do not currently represent policy-induce...
Is this a problem? <ul><li>In climate change policy, competitiveness concerns are most prevalent for energy-intensive and ...
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Nic Rivers Presentation - The Porter Hypothesis at 20: Can Environmental Regulation Enhance Innovation and Competitiveness? June 2010

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Session 3: Drilling Down: Evidence from Empirical Studies on Climate and Energy

Nic Rivers

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Nic Rivers Presentation - The Porter Hypothesis at 20: Can Environmental Regulation Enhance Innovation and Competitiveness? June 2010

  1. 1. Climate policy and competitiveness: A North American perspective from CGE models Nic Rivers Porter Hypothesis at 20 Symposium Montreal, June 27-28, 2010
  2. 2. Computable general equilibrium models are widely used <ul><li>Much applied research exploring climate change policy, competitiveness, and leakage is conducted using computable general equilibrium models with a significant level of commodity detail </li></ul><ul><li>Example 1 – several high-profile studies attempted to estimate the impact of HR.2454 (Waxman-Markey) on US economic output and competitiveness: </li></ul><ul><ul><li>FFEAT model used by EPA/EIA interagency report (2009) </li></ul></ul><ul><ul><li>ADAGE and IGEM models used by EPA (2009) </li></ul></ul><ul><ul><li>EPPA model used by MIT (2009) </li></ul></ul><ul><ul><li>NEMS model (hybrid) used by EIA (2009) </li></ul></ul><ul><li>Example 2 – several studies attempt to estimate impact of proposed policies on Canadian economic output and competitiveness: </li></ul><ul><ul><li>Dissou et al. (2003), Dissou (2005, 2006) </li></ul></ul><ul><ul><li>Wigle (2001) </li></ul></ul><ul><ul><li>Böhringer and Rutherford (2010) </li></ul></ul><ul><ul><li>Rivers (2010) </li></ul></ul><ul><ul><li>CGE models are run by Finance Canada and Environment Canada </li></ul></ul>
  3. 3. Typical findings: climate change policy and competitiveness <ul><li>Market-based climate policy is likely to increase production costs for certain energy-intensive industries. This will reduce international competitiveness of these industries. </li></ul><ul><li>The process for allocation of allowances – auction, grandfathering, or output-based – can have significant impacts on international competitiveness </li></ul><ul><li>Non energy-intensive sectors may experience reduced costs via general equilibrium effects (e.g., reduced input costs due to lower demands) </li></ul>
  4. 4. Competitiveness impacts of HR.2454 in the US Source: Interagency Report on HR.2454, 2009 US$20/tCO2 allowance price Impact of allowance distribution
  5. 5. Competitiveness impacts of 20% reduction in GHG by 2020 in Canada Source: Rivers, 2010, Energy Economics . Impact of allowance distribution $100/tCO2 allowance price
  6. 6. CGE models and the Porter Hypothesis <ul><li>Most disaggregate applied CGE models do not currently represent policy-induced innovation well. </li></ul><ul><li>Innovation is typically exogenous (AEEI or backstop technologies) or is limited to a very small portion of the economy (electricity generation) </li></ul><ul><li>Models with a detailed representation of innovation (research and development, learning by doing, spillovers, crowding out, etc.) are typically too aggregated to be used for applied analysis of policies and competitiveness </li></ul><ul><li>In most applied policy models, the Porter Hypothesis is ruled out by assumption </li></ul>
  7. 7. Is this a problem? <ul><li>In climate change policy, competitiveness concerns are most prevalent for energy-intensive and trade-exposed industries </li></ul><ul><ul><li>Primary aluminum: 22% energy intensity </li></ul></ul><ul><ul><li>Chlorine and alkalies: 24% </li></ul></ul><ul><ul><li>Flat glass: 16% </li></ul></ul><ul><ul><li>Lime: 23% </li></ul></ul><ul><li>Because of high energy costs, these industries invest substantially in energy efficiency, audits, training, personnel, etc.: energy decisions may be “close” to rational </li></ul><ul><ul><li>E.g. all steel mills and petroleum refineries in Canada participate in a “benchmarking” study to understand their full process energy efficiency compared to other plants and a hypothetical state of the art plant </li></ul></ul>Source: Interagency Report on HR.2454, 2009

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