The Pricing of Carbon Emissions from Business Perspective in
Northeast Asia
Presenter: Xianbing Liu
Senior Policy Researcher/Task Manager
Kansai Research Centre, IGES, Japan
21 December, 2013 ACMSA 2013
Presentation Structure
❖ Background of the MBIs project
❖ Surveys and the samples under the project
❖ Major results from the project studies ❏ Determinants for energy saving practices
❏ Company’s MBIs awareness and subjective acceptability
❏ Carbon prices affordable for the companies;
❏ Choice experiment of carbon pricing policies
❖ Research policy implications
❖ Major outputs and efforts in impact generation
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21 December, 2013 ACMSA 2013
Overall Framework of MBIs Project
C2: Current status of firm’ s energy saving practices and analyses of the determinants for identifying policy gaps and directions
C4: Firm’ s awareness and acceptability to carbon emission related tax tools
C6: Development and evaluation of firm’ s preferable policy alternatives with individual tool or combined approaches
Lessons learned Lessons learned
Synthesis summary and integrative policy recommendations
Gap analysis
Literature review and expert hearing
C1: Overview of policies related to industrial energy efficiency and carbon mitigation in the three target countries
Web accessible data
Onsite interviews and hearings
Questionnaire survey
C5: Firm’ s awareness and acceptability to carbon emission trading scheme
Questionnaire surveyQuestionnaire survey
Gap analysis
FY2010
FY2011
FY2012
C3: Analysis of the effectiveness of financial subsidies to firm’ s efforts in carbon mitigation, e.g., subsidies to energy saving investments.
Onsite hearings
Basic ideas: a) Advantages of MBIs; b) Importance of clear and stable policy signals; c) Successful MBIs
Practices in Europe; d) Laggard policy progress in Asia; e) Core competence of IGES; f) Research field of KRC
Geographical focus: China, Japan
and the Republic of Korea
Policy focus: Financial subsidy, carbon
taxes and GHG emissions trading scheme
Overall objective:To support the related policy
discussions from company’s
viewpoints in this region
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21 December, 2013 ACMSA 2013
Climate Policies in the Three Countries
Japan China Korea
Targets
To reduce its 1990 emissions by 6% from 2008-2012 To reduce emissions by 25% from 1990 levels by 2020 (With the premise) To reduce emissions by 80% from 1990 levels by 2050 Improving energy efficiency at least by 30% by 2030
To reduce national energy intensity by 20% by 2010 and to increase renewable energy in the national mix to 15% by 2020 To cut CO2 emissions per unit of GDP by 40-45% by 2020 compared with 2005 levels (Voluntary target)
To reduce by 30% by 2020 compared with BAU levels (Voluntary target)To achieve 46% improvement of energy efficiency by 2030To increase renewable energy in the national energy mix to 11% by 2030
Major policies for industrial sector
Keidanren Voluntary Action Plan GHG Emissions Calculation, Reporting and Disclosure System Feed-in-tariff for renewable energies Subsidies from NEDO, METI and MOEJ Energy-related taxes GHG ETS on trial Carbon tax policy
Energy Efficiency Standards Top 10,000 Energy-consuming Enterprises Program Subsidies and rewards for energy-saving Differential electricity pricing system Resource-related tax Pilot GHG ETS in 5 cities and 2 provinces Carbon tax policy in discussions
Target Management System (TMS) Energy Use Reporting System Energy Audit Requirement Financial subsidies Preferable loans Tax reduction Energy-related tax GHG ETS since 2015 Carbon tax policy in discussions
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21 December, 2013 ACMSA 2013
Surveys under MBIs Project and the Samples
Year Item China Korea Japan
FY2010
Objective Measure company’s practices in energy saving and identify the determinants
Method Questionnaire survey and econometric analysis
Target companies
Based in Taicang city,Jiangsu Province
362 business sites of 244 companies
Samples collected
125, with 80% from chemical, textile & dyeing and machinery sectors
66 business sites, 60% from power, petro-chemical and paper sectors
FY2011
Objective Measure company’s MBIs awareness, acceptability and carbon price affordability
Method Questionnaire survey, econometric analysis and WTP modeling estimations
Target companies
Three energy-intensive sectors: Iron & steel, cement and chemical industries
Samples collected
170, more than 70% belonging to the three focused sectors
62, all from the three sectors and 93.5% is TMS target companies
FY2012
Objective Measure the company’s preference to design alternatives of carbon pricing tools The same as the studies of FY2010 and 2011 in China and KoreaMethod Policy choice experiment and modeling analysis
Target companies
Companies in western Shanxi Province and eastern Jiangsu Province
Focused on the three sectors as in FY2011
465 large energy-using companies in Hyogo
Samples collected
201, almost half from each province150, more than 60% from the three sectors
230, half from food, chemical, steel and electronic sectors
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21 December, 2013 ACMSA 2013
Determinants for Industrial Energy Saving
Determinant factorsEnergy saving practice level (15 activities)
China (N=125) Korea (N=66) Japan (N=230)
External pressures
Pressure from the government
Pressure from industrial association
Pressure from business competitor(+)***
Internal factors
Awareness of energy management problems(+)**
Willingness to improve energy efficiency(+)** (+)***
Top management support(+)* (+)* (+)**
Internal training specific for energy saving(+)*** (+)* (+)**
Control
Current energy price level(+)**
Company size(+)* (+)***
Industrial sector belongings
Note: ***, ** and * respectively means significant at 1%, 5% and 10% level; (+) means the positive relationship.
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21 December, 2013 ACMSA 2013
MBDC Card for Estimating Cost AffordabilityQuestion: The energy prices would be increased due to the introduction and implementation of market-based climate polices, such as imposing energy taxes or carbon taxes in the sector of energy production and transition. Accordingly, the industrial company’s energy consumption cost would be increased. We would like to understand the viewpoint of your company to the energy cost increases due to the climate policy interventions. Please circle one letter to each increase ratio to indicate the affordability degree of your company.
Your company’s choice Energy
cost
increase
ratio (%)
Very low;
Easily
acceptable
Not high;
Acceptable
Moderate;
Barely
acceptable
High;
Rejection
Very high;
Strong
rejection
0.1 ○A B C D E
0.3 ○A B C D E
0.5 A ○B C D E
0.7 A ○B C D E
1.0 A ○B C D E
3.0 A B ○C D E
5.0 A B ○C D E
7.0 A B ○C D E
10.0 A B ○C D E
15.0 A B C ○D E
20.0 A B C ○D E
30.0 A B C ○D E
50.0 A B C D ○E
70.0 A B C D ○E
100.0 A B C D ○E
15 increaseoptions inEnergycosts
Fivelevels of acceptance
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21 December, 2013 ACMSA 2013
Affordability Responses of Samples in China (N=111)
Energy Cost Increase Ratio
(%)
Strong Rejection
(%)
Rejection(%)
Barely Acceptable
(%)
Acceptable(%)
EasilyAcceptable
(%)
Total(%)
0.1 0.0 0.0 1.8 33.3 64.9 100.0
0.3 0.0 0.0 5.4 45.1 49.6 100.0
0.5 0.0 0.9 14.4 50.5 34.2 100.0
0.7 0.0 4.5 17.1 50.5 27.9 100.0
1.0 1.8 8.1 37.8 35.1 17.1 100.0
3.0 6.3 14.4 43.2 27.9 8.1 100.0
5.0 7.2 18.9 46.9 21.6 5.4 100.0
7.0 11.7 29.7 42.3 12.6 3.6 100.0
10.0 19.8 42.3 29.7 6.3 1.8 100.0
15.0 31.5 41.4 24.3 2.7 0.0 100.0
20.0 46.0 41.4 10.8 1.8 0.0 100.0
30.0 55.9 37.8 5.4 0.9 0.0 100.0
50.0 75.7 21.6 2.7 0.0 0.0 100.0
70.0 84.7 15.3 0.0 0.0 0.0 100.0
100.0 87.4 12.6 0.0 0.0 0.0 100.0
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21 December, 2013 ACMSA 2013
Affordability of All the Samples in China (N=111)
02
04
06
08
01
00
Pe
rce
nta
ge o
f th
e sa
mpl
es
0 20 40 60 80 100Energy cost increase ratio (%)
Observed data of easily acceptable & acceptable Observed data of barely acceptable and over
Regression curve of easily acceptable & acceptable Regression curve of barely acceptable and over
50% of the samples corresponds to the ratios of 2.8% and 9.3% on the two curves.
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21 December, 2013 ACMSA 2013
Carbon Prices Affordable for the Companies
Country China (N=170; Unit: Yuan/t-CO2) Korea (N=62; Unit: KRW/t-CO2)
SectorIron & steel
(N=34)Cement(N=17)
Chemical(N=27)
Iron & steel(N=11)
Cement(N=5)
Chemical(N=20)
MEANAFFORD 8.8% 7.7% 9.9% 2.5% 2.8% 2.6%
Affordable carbon price 42.7 38.6 83.7 3,770 2,600 3,950
Country Japan (N=230; Unit: JPY/t-CO2)
SectorFood processing
(N=29)Chemical(N=26)
Iron & steel(N=11)
Electronics(N=12)
MEANAFFORD 2.0% 3.1% 1.5% 2.6%
Affordable carbon price 683 1,062 426 801
a) Similar acceptable ratios in energy cost increases due to pricing of carbon for companies of Japan and Korea, which are much lower than Chinese companies; b) Similar range of carbon prices affordable for companies in Japan and China (5-13 $/t-CO2);c) Carbon prices affordable for Korean companies are 2.3-3.5 $/t-CO2;d) The business affordability is much lower than the price level needed for realizing Copenhagen pledges of the three countries.
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21 December, 2013 ACMSA 2013
Company’s Awareness and Acceptability of MBIs
Policy Type Policy itemPolicy awareness Policy acceptability
China Korea Japan China Korea Japan
MBIs
Economic incentives
Subsidies for energy saving projects 3.75 3.21 2.82 4.19 3.18 3.60
Soft loan for energy saving investments 3.03 1.80 3.43 3.36
Tax credits for energy saving projects 3.56 3.27 2.83 4.21 3.82 3.79
Subsidies and grants for energy efficient products 3.31 3.71 3.54 3.66
Carbon pricing tools
Carbon tax policy 2.87 2.93 2.74 3.36 2.02 2.63
GHG emissions trading scheme 2.86 3.31 2.51 3.61 2.09 2.65
Command-and-control regulations (CCRs)
Energy saving target and responsibility system 3.63 3.66
Energy use and GHG emissions reporting system 3.66 3.63
Voluntary approaches (VAs)
Certification of energy efficient products 3.85 2.73
Voluntary energy saving agreements 3.85 3.41 3.10
Note: The data is the mean of scores. For policy awareness: ‘1’ = ‘completely unknown’; ‘3’ = ‘moderate understanding’; ‘5’ = ‘very clear’. For policy acceptability: ‘1’ = ‘completely unacceptable’; ‘3’ = ‘moderate acceptance’; ‘5’ = ‘fully acceptable’.
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21 December, 2013 ACMSA 2013
Payback Time for Energy Saving Investment
Percentage of the samples (%)
Payback time (Years) <0.5 0.5-1 1-2 2-3 3-5 5-10 >10 In total
China (N=127) 5.5 12.6 30.7 30.7 13.4 4.7 2.4 100.0
Korea (N=62) 3.2 12.9 48.4 33.9 1.6 100.0
Japan (N=220) 0.5 2.3 7.3 22.3 41.4 24.5 1.8 100.0
a) 1-3 years of payback time expected by Chinese and Korean companies;b) The payback time expected by Hyogo companies is longer at 3-5 years;c) High expectation to the profitability of energy saving investments reveals the effectiveness of carbon pricing policies;d) Providing subsidies shorten the payback time and remove barrier of upfront cost, and is therefore useful at the earlier stage of LCT applications.
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21 December, 2013 ACMSA 2013
Attributes and Levels of Carbon Tax and GHG ETS
A: Carbon Tax Policy B: GHG ETS
AttributesLevels
AttributesLevels
China (Yuan/t-CO2) Korea (KRW/t-CO2) China Korea
Tax rate1) 10; 2) 30; 3) 50;4) 100
1) 1,000; 2) 2,000;3) 3,000; 4) 5,000
Cap setting
1) Based on the company’s historical emissions;2) Based on the sector’s advanced emission levels;3) Differentiated measures for the existing and new
established companies
Tax relief measures
1) No relief; 2) Preferential treatment to energy-intensive companies; 3) Preferential treatment to companies actively reducing
emissions to a certain level
Allowance allocation
1) All for free; 2) 5% auction, the rest for free;3) 10% auction, the rest for free;4) 30% auction, the rest for free
Use of tax revenues
1) General budget; 2) Specific fund for energy saving and climate change ; 3) To reduce company’s other taxes
Penalty 1) A fine the same of market price of carbon emissions; 2) 3 times of market price; 3) 5 times of market price
Starting time
1) During the 13th FYP (2016-2020); 2) During and after the 14th FYP
1) Since 2015;2) Since 2021
Compliance period
1) 1 year; 2) 3 years
Criteria for carbon leakage
1) Carbon intensity;2) Trade intensity
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21 December, 2013 ACMSA 2013
Design for Choice Modeling
An example format of choice experiment
Option A
Option B
Change in attribute level
from A to B (+: Better; -: Worse)
Attribute
A1 B1 +
A2 B2 -
A3 B3 +
A4 (Price)
B4 (Price)
+
Tick a box ☐ ☐
An example of contingent ranking
Option A Option B Option C
Attribute
A1 B1 C1
A2 B2 C2
A3 B3 C3
A4 (Price) B4 (Price) C4 (Price)
Ranking of options: 1: ; 2: ; 3: .
An example of pair-wise comparisons
Option A Option B Change in attribute level
from A to B (+: Better; -: Worse)
Attribute
A1 B1 +
A2 B2 -
A3 B3 +
A4 (Price)
B4 (Price)
+
Tick one level: 1--2--3--4--5--6--7--8--9--10
Strongly prefer A Strongly prefer B
An example of contingent rating
Attribute Option A: A1; A2; A3; A4
Tick one level showing your preference:
1--2--3--4--5--6--7--8--9--10
Very low preference Very high preference
Applied for this research
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21 December, 2013 ACMSA 2013
Experiment Design and Choice Set Examples
Policy attribute Option A01 Option B01
Tax rate (Yuan/t-CO2) 50 10
Tax relief measure No relief measurePreferential treatment to energy-
intensive companies
Use of tax revenues General budgetSpecific fund for energy saving
and climate change
Starting time During and after the 14th FYP During and after the 14th FYP
Please tick the one you prefer □ □
Policy attribute Option A01 Option B01
Cap settingBased on the company’s historical
emissions
Based on the historical emissions for the existing companies, and the sector advanced
emission levels for the new entrants
Allowance allocation 3% auction, the rest for free All for free
Penalty A fine of 3 times of the market price A fine of 5 times of the market price
Criteria for carbon leakage industry
Carbon intensity Trade intensity
Please tick the one you prefer
□ □
◆ Design method is the same as carbon tax policy;
◆ An example set of GHG ETS in Korea.
◆ Design Expert 8.0 was used;◆ D-optimal design applied;◆ 12 Choice sets constructed;◆ Two versions, 6 sets for each;
◆ An example set of carbon tax policy in China.
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21 December, 2013 ACMSA 2013
Attributes Determining Company’s Policy Choices
The choice of carbon tax policy The choice of GHG ETS
Attribute China Korea Attribute Korea
Tax rate (TAXRATE)(-)*** (-)***
Benchmarking for cap setting (CAP-B)(+,-)***
Relief to energy-intensivecompanies (RELIEF-B)
(+)*** (+)*** Hybrid of grandfathering and benchmarking (CAP-C)
(+,-)***
Relief to energy efficient companies (RELIEF-C)
(+)*** (+)** Auction ratio for allowance allocation (ALLOCATION)
(-)***
Specific fund for climate change (REVENUE-B)
(+)** (+)** A penalty of 3 times of credit market price (PENALTY-B)
(-)***
Use to reduce company’s other taxes (REVENUE-C)
A penalty of 5 times of credit market price (PENALTY-C)
Starting time (TIME) (-)*** Use carbon intensity as leakage risk criteria (LEAKAGE)
(+)***
Obs. 1,041 900 900
Note: ***, ** and * individually means significant at 1%, 5% and 10% level; (+) and (-) means the positive and negative relationship, respectively.
Analysis models applied:
MNL: Multinomial LogitRPL: Random Parameter LogitLC: Latent Class Model
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21 December, 2013 ACMSA 2013
WTP Values of Non-price Policy Attributes
The choice of carbon tax policy The choice of GHG ETS
Attribute China (Yuan/t-CO2) Korea (KRW/t-CO2) Attribute Korea (%)
RELIEF-B-65.9 -1,804
CAP-B16.2
RELIEF-C -65.4a -1,607 CAP-C 12.9
REVENUE-B -23.2 -678 PENALTY-B 13.3
REVENUE-C -18.6 a 125 PENALTY-C 6.8
TIME 6.4 a 1,665 LEAKAGE -14.7
Note: Tax rate is used as the denominator for carbon tax and the auction rate for allowance allocation is the denominator for GHG ETS; a The estimated WTP is not statistically significant.
Example explanations:
◆ Setting relief measure for energy-intensive sector (RELIEF-B) is the same as a decrease of 65.9 Yuan/t-CO2 of tax rate in influencing the company’s policy choice;
◆ Similarly, using the tax revenue earmarked for climate change (REVENUE-B) rather than as general budget (REVENUE-A) equals to a decrease of 23.2 Yuan/t-CO2 in tax rate.
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21 December, 2013 ACMSA 2013
Policy Implications of the MBIs Project
Overall, this project studied the application of MBIs, especially carbon pricing
tools, for enhancing energy saving and carbon mitigation from the business
perspective;
The identification of factors influencing company’s energy saving practices
clarifies the direction for future policy efforts;
Estimations of carbon price level affordable for the companies confirm the
difficulty for closing the policy gap, and provide meaningful referendums for the
development of carbon pricing policies;
The policy experiment confirms the principles for the design of carbon pricing
policies, including carbon tax and GHG ETS, and indicates the options preferable
for the industry;
The practical way is to combine a carbon tax with wide coverage but low tax rates
with domestic GHG ETS focusing large emitters. The revenues from carbon
pricing shall address R&D and earlier applications of LCT.
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Invited presentations:1) Symposium of UNDP2) Sao Paulo Univ., etc.Present at conferences:
e.g., EAERE, GCET, JSEEPS, KAPF, etc.
4+(2)
Speedy
Outputs Generation
National policy
makers & regional
policy platform
KRC/IGES
Organizations in China:
-Universities: Tsinghua, Tongji- Research Institutes: ERI/NDRC, RIFS/MOF- National Government: MOEP- Local governments, etc.
Organizations in Korea:
- Research Institutes: KEI, KECO, KEEI, GGGI- Government: MOE, MOKE- Universities- etc.
Policy brief
Networking
Outcomes and Impact Generation
1+(1)
1
1+(1)
(1)
Networking
21 December, 2013 ACMSA 2013 19
21 December, 2013 ACMSA 2013
Thank you for your attention!
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