Measuring Environmental Policies and Their Economic Impacts
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Measuring Environmental Policies and Their Economic Impacts - Presentation by Tomasz Kozluk, OECD
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Measuring Environmental Policies and Their Economic Impacts
- 1. MEASURING ENVIRONMENTAL POLICIES AND THEIR ECONOMIC IMPACTS Tomasz Kozluk, Economics Department & Environment Directorate, OECD Expert workshop, Bogor, Indonesia 5th November 2015
- 2. Contents Measuring environmental policies: • What is worth measuring & why? • What can we measure & how? Measuring economic impacts: • productivity growth (OECD) • international trade and global value chains (OECD+ BRIICS) • others (investment, employment, inequality, innovation)
- 3. Environmental policies – dimensions worth measuring Source: Hascic and Johnstone, 2009, De Serres et al. 2010, Botta and Kozluk, 2014 • the “strictness”, explicit or implicit price that polluters pay for pollutingStringency • Choice of compliance strategy, technology Flexibility • Continuous incentives to improve performance Dynamic efficiency/depth • Stability and consistency of policy signal Predictability • Extent of obstacles to entry and development of new firms, ideas, products Competition friendliness
- 5. How can we measure stringency? Environmental policy instruments 1 Perceptions of Environmental policies 2 Changes in agents' behaviour 3 Changes in environmental outcomes 4 Environmental laws are designed and implemented… … to alter firms’/consumers’ behaviour… … and achieve “cleaner outcomes Botta E. and Koźluk, T. (2014)
- 6. Environmental policy stringency (EPS) indicator structure Composite EPS indicator Market-based policies Non-market based policies • CO2 • NOx • SOx • Diesel Taxes • CO2 • Renewable Energy Certificates • Energy Efficiency Certificates* Trading Schemes • Solar • Wind FITs • Deposit & Refund Scheme DRS • Emission Limit Values: • NOx • SOx • PMx • Diesel content limit (Sulphur) • Govt. R&D expenditure on Renewable Energy Standards R&D Subsidies Currently: upstream activities (energy, transport), mainly air and climate policies. National and regional. 24 OECD countries over 1990-2012. Now preliminary extentions to Brazil, Russia, Indonesia, India, China and South Africa. Botta E. and Koźluk, T. (2014)
- 7. 0123 BRIICS OECD High EPS OECD Low EPS mean of eps_1995_99 mean of eps_2005_09 Increasingly stringent environmental policies – fears of Pollution Haven effects 7 Koźluk, T. and C. Timiliotis (2015, forthcoming)
- 8. Good proxy for overall country’s EPS? 2000s 2010 Perceived stringency (WEF) .50 (.00) CLIMI (EBRD) OECD only .56 (.01) Energy prices (Sato et al. 2015) 0.60 (.00) High correlations with other measures of stringency (OECD+BRIICS): Notes: numbers in brackets are significance levels. WEF – World Economic Forum Executive Opinion Survey question on managers’ perceptions of EPS. Climate Laws, Institutions and Measures Index (CLIMI) – EBRD (2012). Koźluk, T. and C. Timiliotis (2015, forthcoming)
- 9. • Compare with others if possible • Disclose data (http://oe.cd/OQ) • Continue to improve and extend (e.g. water, resources; other countries) • Data collection, policy comparability, measurement, enforcement issues • Engage with national authorities and experts (!) Broad, but still a proxy…
- 10. Indicators of “Burdens on the Economy due to Environmental Policies” (BEEP)
- 11. What are the design and implementation features of environmental policies that can burden entry & competition? Why? OECD experience with product market regulation: entry and competition barriers -> bad for investment, innovation, growth…. … should be minimised where possible BEEP: Question
- 12. Burdens on the Economy due to Environmental Policies (BEEP) Burdens on the economy due to EP (BEEP) Barriers to entry and competition (lack of) Evaluation of EP effects on economy Administrative burdens Evaluation of existing policies Evaluation of new policies Impediments to competition Koźluk, T. (2014)
- 13. High barriers to entry/competition are not a “must” of stringent environmental policies Koźluk, T. (2014). AUS AUT BEL CAN CHE DEU DNK ESP GBR GRC HUN ITA JPN NLD NOR POL PRT SWE USA IRL KOR FRA AUS AUT BEL CAN CHE CHL CZE DEU DNK ESP EST GBR GRC HRV HUN ISR ITA JPN MEX NLD NOR NZL POL PRT SVK SVN SWE TUR ZAF USA IRL KOR FRA ISL 3 3.5 4 4.5 5 5.5 6 6.5 7 1 2 3 4 5 0.5 1 1.5 2 2.5 3 3.5 4 4.5 WEF EPS (perceived , 2012) RED Morestringentenvironmentalpolicies Policies more burdensome to entry and competition OECD EPS (de jure, 2012) BLUE Morestringentenvironmentalpolicies
- 14. Economic effects of environmental policies
- 15. Results: simulated effects of EPS tightening on country productivity growth (over time) Negative anticipation effect Positive rebound effect Cumulatively no effect on MFP levels Albrizio et al. (2014), OECD Economics Department Working Papers, forthcoming.
- 16. Simulated short-term effects of EPS tightening on productivity growth Albrizio et al. (2014).
- 17. Trade impacts of EPS over 1995-08 17 Koźluk, T. and C. Timiliotis (2015 forthcoming)
- 18. • To facilitate change and make most out of it – (rather than resist it)… • …broad approach: – well-designed environmental policies, – Framework (to support innovation, cleaning, reallocation) and social policies, – Aligning other policies (APT), Fears of EPS effects on economy likely exaggerated…but winners and losers
- 21. instruments Indonesia green trading scheme DOES NOT EXIST CO2 trading scheme DOES NOT EXIST White trading scheme DOES NOT EXIST SO2 trading scheme DOES NOT EXIST? Government R&D expenditure NO DATA FiT Wind FIGURES FOR 2011-2012 FiT Solar FIGURES FOR 2011-2013 Deposit refound scheme DOES NOT EXIST Emission limit value SO2 FIGURES FOR 1995 – 2012 Emission limit value NOX FIGURES FOR 1990 – 2012 Emission limit value PM FIGURES FOR 1990 – 2012 Fuel limit value - Sulphur DOES NOT EXIST???? CO2 tax DOES NOT EXIST SOx tax DOES NOT EXIST? NOx tax DOES NOT EXIST? tax on diesel HH DOES NOT EXIST? tax on diesel industry DOES NOT EXIST? electricity price industry NO DATA Preliminary EPS – underlying data
- 22. Stringency necessary for addressing wellbeing objectives, nevertheless: • Environmental policy stringency does not have detrimental effects on aggregate productivity. • Technologically advanced firms and countries: temporary boost in productivity growth - especially relying on more flexible instruments (e.g. taxes, ETS): – Best suited to grasp new opportunities, innovate, adopt top technologies – Relocate and trim down activity? • Low-productivity firms: temporary fall in productivity growth – Higher investment to comply – Less able to adjust – Part of the adjustment may be due to entry/exit. • Effects do not depend on initial EPS levels Conclusions (1)
- 23. Achieving both economic and environmental objectives requires new ideas, technologies and business models. Environmental policies should do the most not to prevent these to enter and develop – i.e. avoid increasing barriers to entry and competition. • There is no evident trade-off between stringency of environmental policies and competition-friendliness. • Ensuring swift reallocation of resources can help assure economic outcomes are in line with productivity gains. Conclusions (2)
- 24. EPS – random weights – robustness 26
- 25. BEEP – random weights – robustness 27
Editor's Notes
- Equal weights at each level. Scoring – 0 to 6 bins, relative to sample distribution.
- For the purpose of trade estimations the EPS indicator has been slightly modified and provisionally extended (see Appendix II for details): The original indicator was refocused even more on air and climate, by excluding the data on deposit and refund schemes. The refocused EPS has several advantages – a more concise and cost-focused set of policies, concerning primarily (potential) cross-border pollutants. Moreover, deposit and refund schemes are regarded a negligible determinant in the context of international production location (Brunel and Levinson, 2013). The indicator has been extended to the BRIICS countries (Brazil, Russia, India, Indonesia, China and South Africa), since international trade and global value chains increasingly rely on the participation of emerging economies. The extension required a new data collection effort and assumptions in order to include countries where few data were available. A snapshot comparison shows that, in line with expectations, BRIICS generally have less stringent environmental policies than OECD countries throughout the sample (Figure 2). . The extension of the EPS indicators to BRIICS is part of a wider project, which benefits from the support of the United Kingdom. Notes: Higher value is associated with higher stringency. Sample averages over 1995-99 and 2005-09 reported. Country groupings: BRIICS, OECD High EPS - most stringent countries over the sample (Denmark, Germany and Switzerland) OECD Low EPS – least stringent countries over the sample (Australia, Ireland and the Slovak Republic).
- The chart shows the simulated effect of a median increase in environmental policy stringency, i.e. 0.12 change in the value of the EPS index in one single year (equivalent to the change in annual average tightening from the level in Italy or Greece to that of the Nordic countries). The absolute level of effect (in terms of percentage points of annual MFP growth) will be the same for all countries, regardless of their productivity growth. 90% confidence intervals are reported.
- Simulated effect of one year effects of a median increase in environmental policy stringency, i.e. 0.12 change in the value of the EPS index in one single year (equivalent to the change in annual average tightening from the level in Italy or Greece to that of the Nordic countries). High (low) pollution intensity is defined as an industry with the highest (lowest) pollution intensity on seven selected key pollutants with respect to value added. (3) High productivity is defined as the country-industry pair (or firm) on or close to the estimated global industry (or firm) productivity frontier. Low productivity is defined as country-industry pair (or firm) at the 75th percentile of distance to the global industry (or firm) productivity frontier. 90% confidence intervals are reported. Effects are estimated to last for three years after the policy change and then fade away. No lead effect is found.
- Notes: The growth in domestic VA in exports between 1995 and 2008 has been decomposed according to the estimated gravity model. The graph shows trade flows between BRIICS and high EPS countries (Germany, Switzerland and Denmark) in “dirty” (Chemical, rubber, plastics and fuel products) and “clean” (Machinery and equipment) sectors. Changes in the gravity variable refer to changes in the exporter and importer’s GDP only. “Residual” captures effects not explained by the model. Arrows point to the effects of EPSgap.