Luis Rey (BC3) CECILIA2050 Workshop Bilbao, 23rd October 2015. "EU CLIMATE POLICIES TOWARDS A LOW-CARBON ECONOMY"

1. Explicit and implicit carbon
pricing of different instruments
at the EU level
Luis Rey
Bilbao
October 23, 2015
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2. 2
 How do we measure static efficiency?
 Ideally, the static efficiency is assessed in terms of
how successful the current policy mix is in equalising
the marginal abatement cost across sectors and
across emitters.
 This measure is typically approximated through the
carbon price: the policy mix is statically efficient if it
succeeds in generating a uniform carbon price
across sectors and emitters.
 Carbon prices can be explicit, such as the carbon
price of the EU ETS, or implicit.

3. 3
Carbon price of the EU ETS

4. 4
 Implicit carbon price: financial support by
technology divided by the amount of CO2 emissions
avoided.
 Example: average support is 50 €/MWh and emissions account for 0.5
tCO2/MWh. This implies an implicit carbon price of 100 €/tCO2.
 Average financial support by technology is obtained
from CEER database.
 The amount of CO2 avoided:
 National mix (excluding renewables)
 EU mix (excluding renewables)
 Natural gas
RES support mechanisms in the electricity sector

5. 5
Hydro Wind Biomass Biogas PV
Geo-
thermal
Waste
Czech Republic 83.2 21.1 59.3 166.2 790.4 :: ::
France 133.2 385.2 536.8 420.7 5381.0 :: ::
Germany 67.4 77.6 228.6 :: 733.8 294.5 ::
Italy 149.9 142.1 224.8 :: 759.5 153.8 ::
Netherlands 224.9 185.4 171.0 :: 890.2 :: 111.3
Spain 124.8 129.2 219.8 :: 1134.3 :: 84.5
United Kingdom 131.0 145.4 129.5 127.6 416.7 :: ::
RES-E support mechanisms: Implicit carbon price (€/tCO2) (2010). National Mix

6. 6
Hydro Wind Biomass Biogas PV
Geo-
thermal
Waste
Czech Republic 97.5 24.7 69.5 194.8 926.2 :: ::
France 22.9 66.3 92.3 72.4 925.7 :: ::
Germany 66.5 76.6 225.6 :: 723.9 290.5 ::
Italy 149.9 142.0 224.7 :: 759.2 153.8 ::
Netherlands 183.7 151.5 139.7 :: 727.2 :: 90.9
Spain 82.1 85.0 144.6 :: 746.3 :: 55.6
United Kingdom 117.1 129.9 115.8 114.0 372.5 :: ::
RES-E support mechanisms: Implicit carbon price (€/tCO2) (2010). EU Mix

7. 7
Hydro Wind Biomass Biogas PV
Geo-
thermal
Waste
Czech Republic 143.2 36.3 102.0 285.9 1359.8 :: ::
France 33.6 97.3 135.6 106.2 1359.0 :: ::
Germany 97.7 112.5 331.2 :: 1062.8 426.5 ::
Italy 220.0 208.5 329.9 :: 1114.5 225.8 ::
Netherlands 269.8 222.4 205.0 :: 1067.6 :: 133.5
Spain 120.6 124.8 212.4 :: 1095.7 :: 81.7
United Kingdom 172.0 190.8 170.0 167.4 546.9 :: ::
RES-E support mechanisms: Implicit carbon price (€/tCO2) (2010). Natural Gas

8. 8
 Implicit carbon price: excise tax per unit of energy product
divided by the CO2-eq emissions per unit.
 Example: excise tax is 0.5 €/litre and emissions account for 2 kgCO2/litre. This implies
an implicit carbon price of 250 €/tCO2.
 Taxes are obtained from the IEA and emission factors from
the IPCC.
Energy taxes

9. 9
Energy taxes: Implicit carbon price (€/tCO2) (2012).
Electricity Natural gas Diesel
Unleaded
gasoline
Light
fuel oil
LPG
Industry Households Industry Households
Czech Republic 1.91 2.03 6.03 0.00 163.61 222.40 9.86 53.10
France 212.41 299.49 7.23 5.50 151.10 248.71 20.86 37.09
Germany 72.67 160.52 19.95 27.23 175.71 270.36 22.94 56.87
Italy 196.11 152.04 21.79 ::: 230.74 316.01 151.28 90.87
Netherlands 30.84 18.77 13.37 84.42 162.02 318.20 ::: 58.11
Poland 6.12 6.12 0.00 0.00 129.19 175.54 20.73 68.25
Spain 21.85 36.76 0.00 0.00 133.26 191.20 31.20 19.78
United Kingdom 7.55 0.00 4.40 0.00 263.54 312.09 50.62 :::

10. 10
 What happens if we include other externalities?
 We include data from the IMF on air pollution, accidents…
Excise tax
(€/litre)
local air
pollution
(€/litre)
congestion
(€/litre)
Accidents
(€/litre)
road
damage
(€/litre)
Implicit
Carbon Price
(€/tCO2)
Czech
Republic 0.4366 0.139 0.178 0.103 0.041 -9.670
France 0.43 0.128 0.391 0.101 0.039 -84.400
Germany 0.47 0.154 0.302 0.077 0.026 -33.069
Italy 0.606 0.146 0.217 0.116 0.026 37.942
Netherlands 0.44028 0.121 0.409 0.068 0.010 60.408
Poland 0.35461 0.098 0.107 0.164 0.012 -13.215
Spain 0.361 0.164 0.343 0.085 0.030 -94.172
United
Kingdom 0.67415 0.091 0.356 0.050 0.026 72.019
DIESEL

11. 11
Excise tax
(€/litre)
local air
pollution
congestion accidents
Implicit
Carbon Price
(€/tCO2)
Czech
Republic 0.511 0.008 0.189 0.151 70.973
France 0.604 0.008 0.373 0.112 47.289
Germany 0.655 0.008 0.287 0.085 113.385
Italy 0.717 0.007 0.207 0.129 163.110
Netherlands 0.736 0.007 0.390 0.076 113.887
Poland 0.398 0.009 0.114 0.239 15.657
Spain 0.457 0.015 0.326 0.094 8.866
United
Kingdom 0.715 0.004 0.339 0.056 137.781
GASOLINE

12. 12
Conclusions
 There is little harmonisation in the promotion of renewables and
energy taxes at the EU level.
 The implicit carbon price set by the different policies, vary
widely.
 In the long-term, in order to maximize the static efficiency of the
EU climate instrument mix, the implicit carbon price set by the
different policies should convergence with the carbon price of
the EU ETS.