User response and equity considerations regarding emission cap and trade schemes for travel Adriaan Perrels - VATT Entretiens Jacques Cartier – Lyon – 4&5-12-2006 Main Conclusions • Transport cap & trade systems at the individual household level are in principle possible, but not necessarily always preferable – If for transport only, a supply side oriented system is probably more effective – If at household level per se, the base should be widened (other consumer expenditures and actions) • In a largely grandfathered cap&trade system purchasing power effects are mostly fairly modest; some special groups may face larger inequitable effects Structure of the paper • The necessity of cap & trade systems • Identification options for carbon budgets of households • Responsiveness to quota • Practical issues and transaction cost • Equity considerations • Conclusions N.B: Full reference information on sources can be found in the conference paper. The transparencies provide only abridged references. 1. Necessity Technology will have an important role but income elasticity and rebound effects seem to necessitate additional action. Yet, we should not entirely forget cost efficiency (cost/ton CO2) Austria Denmark Finland France Germany Italy Netherlands Spain UK EU15 CO2 emissions in tons/capita per annum 1980 7,42 12,28 11,61 8,43 13,54 6,44 10,87 5,05 10,17 9,21 1990 7,32 9,84 11,01 6,06 12,15 7,05 10,51 5,31 9,78 8,51 1995 7,49 11,08 11,05 5,97 10,68 7,21 11,04 6,00 9,20 8,27 2000 7,73 9,39 10,59 6,20 10,16 7,36 10,88 7,09 8,94 8,34 of which transport 1980 1,58 1,77 1,76 1,63 1,66 1,27 1,59 1,21 1,61 1,57 1990 1,75 2,02 2,37 1,99 2,02 1,70 1,76 1,65 2,15 1,97 1995 1,86 2,27 2,24 2,11 2,07 1,88 1,90 1,85 2,18 2,08 2000 2,22 2,25 2,36 2,30 2,12 1,96 2,06 2,30 2,25 2,25 Source: Tapio et al. in Energy Policy, January 2007 2.1 Identification - what basis? • Consumer expenditure based – I/O model (less accurate; projections possible; benchmarking instrument) – Specific transaction / supply chain (accurate; no projections; tracking instrument) • Separately observable transaction is important – feedback features (DSM experiences) – Form: e.g. CO2 debit card • Only transport (or one mode) or wider? – If steering technology choice important, supply side preferable – If household level deemed inevitable, than wider consumption base recommendable, it gives leeway to optimise and may help to reduce price volatility 2.2 Identification – what aims? Comparison of embodied CO2 via consumption-production chains: • capturing household behaviour and its impacts for effects/sectors not addressed through other policies, …or • motivating transport providers (incl. car owners) to redress their choices regarding technology, performance, etc. In the background loom choices whether an addition to the policy portfolio is aimed at or a larger rearrangement. In the latter case interaction effects with existing instruments can be important. Expenditure categories kg CO2 per euro Foodstuffs 0,9 Source: Perrels and van Arkel, Appliances (excl. electricity during their use) 1,0 ECN, 1995 Heating and lighting at home 10,3 Transport fuels 12,7 Transport services 0,5 2.3 Identification – air travel Air travel would be a relatively easy mode to address - Rapidly growing (IPCC: 2050 level 3x~ 6x the year 2000 level of radiative forcing) - Does interfere less with daily travel patterns (so less opposition from electorate) - Clearly defined technology; limited number of firms - Example calculations for a EU scheme (Wit et al, 2005) 1400 km haul: ticket price +1 to +10 euro (depending on tightness of the cap) - Likely sector responses: - More efficiency in operations; (earlier) fleet renewal - Buying permits from CDM and JI 3.1 Responsiveness • The following types of responses can be distinguished (for a household based system): – reduction of the total amount of vehicle kilometres – switching from a mode with higher emission intensity to one with lower emission intensity – improvement of the vehicle stock’s fuel efficiency – fuel switching (to a source with essentially less or no greenhouse gas emissions) • Concrete reactions for: – households: economising car use, car sharing, mode switch, tele-services, residential relocation, etc. – Public authorities / companies: logistics and traffic flow management, supportive measures for households (more public transport, promotion of tele-working, …) Responsiveness - interlude Is it ?? ... Or that ??? 3.2 Responsiveness Suppose: • Grandfathered transport CO2 emission rights to households based on fairly but not too strict benchmark which allows for some variation in household characteristics • Households can rearrange their travels and/or buy emission rights from others (via an electronic trade platform) • Both own and public modes are charged • Matching of travel performance and emission rights held is checked annually (cf. income declaration); yet regular tracking of match is recommended 3.3 Responsiveness Comparison with what kind of elasticities? • Fuel price ? • Road pricing ? • Car use ? Budget reallocation: for most households not more than a few 100 euro (paying or receiving) Distinguish between short term and long term responsiveness Probably differences between daily trips and long distance trips 3.4 Responsiveness short run # long run * Household income – fuel demand 1,0 ~ 1,3 Sources: Fuel price – fuel demand -0,2 ~ -0,3 -0,4 ~ -0,8 Storchmann (2005) in Energy Economics; Household income – car stock** 0,9 ~ 1,2 Santos and Fraser Car cost excl. fuel – car stock** -0,8 ~ -1,1 (2006) in Fuel price – car stock** -0,05 ~ -0,15 Economic Policy Household income – fuel demand ** 1,0 ~ 1,1 Car cost excl. fuel – fuel demand ** 0 ~ -0,5 Fuel price – fuel demand ** -0,8 ~ -1,0 generalised cost – urban trip by car^ -0,96 (private cars); -2,67 (taxis) congestion charge – (urban) trip by car^ -0,27 congestion charge – (urban) trip by taxi^ 0,35 There was no noticeable effect on use of the underground. Instead the boost in the bus system was a Supportive success. The number of passengers of inbound and outbound buses rose by 37% and 29% respectively. As measures congestion charge – public transport use^ also the number of buses rose, the number of passenger by bus rose by 8% (inbound) and 2% (outbound) are (London case) respectively. Overall average bus speeds increased by important 7% in and nearby the charging area and by 3% across Greater London. Waiting time for bus passengers decreased by 24% across Greater London. 4. Practical issues Variability of household circumstances: • Location, income changes • Increase/decrease of no. of household members • Dissolution of the household • Allocation within household Participation in trade • Transparency and transaction cost • Practical permit market access 5. Equity • Without revenue recycling it would be regressive, but by devising a benchmarked grandfathered system regressive effects can be strongly reduced or even reversed • Purchasing power effects usually small (often <-0,5% for buyers); overall ~ -0,2% • Poorer households in sparsely populated areas may be ‘cornered’ • For poor car dependent households assistance by means of green loans, adapted benchmarks, etc. • Elderly in cities may be net gainers, provided they are easily involved in the trading system 6.1 Conclusions • Transport cap & trade systems at the individual household level are in principle possible, but not necessarily always preferable – If for transport only, a supply side oriented system is probably more effective – If at household level per se, the base should be widened (other consumer expenditures and actions) • In a so-called (largely) grandfathered cap&trade system purchasing power effects are mostly fairly modest; some special groups may face larger inequitable effects 6.2 Conclusions • In order to establish adequate benchmarking and tracking systems, additional research and recurrent updates will be necessary • A household based system with a wider capture than transport only, needs to be properly delineated to avoid overlap with EU-ETS • It is recommendable, notably for the broader schemes, to assess interaction effects with the existing relevant policy portfolio, and to redress that portfolio if necessary (and/or the permit scheme) Thank you Like this ??
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