Waste taxation: is it working? How could we improve it?

Following-up the research on the effects of environmental taxation reforms, we have concluded another interesting piece of research along with Veronica Martínez and Ignasi Puig, both from ENT Environment and Management, my return host. Starting with a version of the dynamic macroeconomic model I developed at Harvard in the context of the Metres project, we have assessed the impact of current and other hypothetical set-ups of waste taxation in Spain.

One of the strengths of the energy-environment-economy model developed  is the high industry/commodity detail it contains in relation to other models. There are 101 industries, including 19 different sectors regarding waste treatment. So we included different waste treatment technologies: (1) incineration: food waste, paper waste, plastic waste, inert/metal waste, textiles waste, wood waste, oil/hazardous waste; (2) biogasification and land application: food waste, paper waste, sewage sludge, composting and land application, food waste; (3) waste water treatment: food waste, other waste; (4) landfill: food waste, paper, plastic waste, inert/metal/hazardous waste, textile waste, wood waste.

landfill

This way we can, not only simulate the effect of current taxation on these industries, but also to introduce other scenarios that could potentially improve economic and environmental indicators. Theory suggests that these scenarios should be to increase taxation on incineration and landfill technologies, and at the same time, reward recycling technologies (and activities), if we want to improve environmental conditions.

This is exactly what we have done by setting different scenarios that test this environmental economics principle.

Besides, in this research we have gone further in the analysis and developed different environmental impact categories as an extension of the base model. These categories are global warming potential, marine eutrophication potential, photochemical ozone formation potential, particulate matter, human toxicity (cancer and noncancer), ecotoxicity, and depletion of fossil resources. This way we can track the effects of policies on them, providing an interesting source of information for policymakers.

We found that current taxation has some positive environmental impact but would be deeply improved with a different policy design that includes what we intuited. That is, penalize landfill and incineration and bonify recycling is better for environmental conditions and, depending on other design conditions, can be better for the economy.

An extensive article with all the details has been sent to an academic journal for review.

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Attending the EMP-E conference 2018: ‘Modelling Clean Energy Pathways’

Early this week I attended an interesting conference at the European Commission headquarters in Brussels: the Energy Modelling Platform conference for Europe (EMP-E). It is organized by four big European projects on modelling, energy and environment: MEDEAS, REEM, REFLEX and SET-Nav. There were very interesting discussions between scientists and policy-makers around modelling on many different topics and areas such as energy, economics, engineering, environment, etc.

I had the opportunity to present some of the results of the METRES project to the plenary audience and in a poster. Specifically, those related to the achievability of a double dividend by an Environmental Fiscal Reform (EFR). I also had the opportunity to meet many interesting scientists from other parts of Europe.

Plenary sessions included key themes like ‘modelling of behavioral aspects’, ‘integrated modelling of energy and resource efficiency’ and ‘innovation in the energy transition’, all of them important from the point of view of the research I am carrying out in METRES. Both in plenary and parallel sessions, I would highlight current discussions in modelling community around two main issues: ‘open access’ of the models we develop, and the real usefulness/limits of them. I could observe that they showed up in many sessions and generate controversy amongst the community.

More information on the conference can be found here.

Time to pause and summarize achievements of the Metres project

About to have some well-deserved vacation, it is time to pause and reflect about the achievements of the Metres project so far, as well as the remaining challenges. The Metres project ends on December the 31st of this 2018, so there are only five months ahead to close it.

In these 25 months since its start at Harvard University, I have achieved many challenges. The most important one, a detailed and complex dynamic energy-environment-economy CGE model of the Spanish economy for 101 industries/commodities that allows the analysis of different types of taxation policies from an economic and environmental perspective. This model has experienced many adaptations for the different researches I have carried out.

Regarding publications, one article has already been published in Sustainability using this tool: an assessment of an environmental fiscal reform. Three more are under review in different review stages: the impacts of a carbon tax; the use of energy taxes for an energy transition and a third on the use of taxation to tackle secondary effects of energy productivity. Moreover, a critical review on the use of CGE models and the double dividend hypothesis has also been published in the Journal of Policy Modeling, another top peer-review journal.

Now I am preparing another research, in collaboration with other members of ENT, that will end up in an article on the impact of waste taxes and proposals to improve them. Beyond the impacts on macroeconomic indicators, we will track the impacts on other indicators like global warming potential, marine eutrophication potential or human toxicity, among others. This will extend our model toward environmental and health considerations, providing more detailed assessments that may be interesting for other disciplines beyond pure economic analysis. We plan to have it finished, with an article sent to a peer-review journal, by the end of the year, concluding this way the Metres project.

However, we will still carry out other dissemination activities till January 2019. I’ll keep you posted!

Enjoy!!!!

20180703_212121Vilanova i la Geltrú (Barcelona)

Attendance and presentation at the 8th Atlantic Workshop on Energy and Environmental Economics

Las week I attended an interesting conference in la Isla da Toxa, in Galicia (Spain): the 8th Atlantic Workshop on Energy and Environmental Economics. This is a micro-island in the very north west of Spain. It was quite a challenge to get there as it is far from the main airports, but I rented a car and I could do it with the help of google maps.

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The conference is a two-day biannual workshop on energy and environmental economics organized by Economics for Energy with the collaboration of CEPE (ETH Zurich) and the University of Münster (CAWM) and the support of ECOBAS.

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I was impressed with the quality of participants and researches explained there. I had the opportunity to meet a lot of interesting people working on similar topics of my research field. Around 60 researchers from Germany, France, Spain, Italy, the US, etc. attended the workshop, and most of them presented their research.

I had the opportunity to present some of the findings of the Metres project so far. My talk was titled: “The economic and environmental effects of an environmental fiscal reform in a dynamic CGE framework”. We have already published a paper in Sustainability journal explaining this research, but I had the opportunity to present it and answer some questions from the audience.

You can find the slides of the presentation in the link below:

PresentacionATOXA_06

 

Energy pricing to counteract the rebound effect of energy efficiency

As explained in previous posts, energy efficiency policies are not as effective as expected in reducing energy consumption. The reason is that engineering calculations do not take into account secondary effects coming from agents’ behavior. This is known as the rebound effect.

Although most of the efforts have been placed in providing empirical evidence and improving theoretical background and methods, some few studies suggest that energy pricing (taxation, cap-and-trade systems) could be a potential solution to offset the rebound. One problem is, however, that the magnitude of rebound is still under discussion, so how do we tax energy in an effective way that deals with rebound? And what about other economic impacts of such a tax?

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I have conducted an empirical assessment (the first one, as far as I know) on potential energy taxation to counteract the economy-wide rebound effect. Using an adapted version of the dynamic energy-economic CGE model developed for the Metres project, I have tested the effects of an energy productivity improvement on energy consumption, finding an economy-wide rebound effect of 82.82%. This means that only 17.18% of expected energy savings become effective. Then I have tested different forms of energy taxation and found that a marginal tax rate lower than the increase of productivity would totally counteract the rebound effect and there would still be a global economic improvement from the energy productivity increase, in relation to the base case. Specifically, for a global energy productivity improvement of 5%, we would need an ad valorem tax rate of 3.76% to the production of all energy industries to totally offset the rebound effect.

Energy efficiency must be stimulated, but additional measures should be planned if we want to reduce energy consumption. This research suggests energy taxation would be a good candidate.

An article with these and other interesting results from the analysis, as well as more details, has been sent to a scientific Journal.

Reform of electricity taxes and energy transitions

Since I started in my new post at ENT Environment and Management in Catalonia, I have been analyzing the electricity taxes in Spain, as well as their effectivity as environmental taxes. That is, which are the effects of these taxes on different environmental and macroeconomic indicators.

There are two taxes on electricity: the excise duties on electricity and the tax on the production value of electricity. Neither of them differentiate between clean energy sources and dirty ones, applying the same tax rates to wind, solar, hydro or biomass electricity generation than to hydrocarbons-based or nuclear production of electricity. So they could be considered environmental taxes, as can stimulate a reduction in the use of electricity in general, but they do not promote a transition towards renewables, a key issue to tackle climate change. My hypothesis then, is that a reform focused on electricity taxation on hydrocarbons and nuclear rather than on all sources of generation of electricity, in a revenue-neutral context, would improve the environment, not only in the short term but also in the long term by boosting an energy transition.

To test this hypothesis, I have developed an adaptation of the dynamic energy-environment-economy model I built for other similar purposes. I have assessed the environmental and economic impacts of electricity taxes in four different scenarios: A) Effects of current electricity taxes; B) Effects of a reform that exempts renewable energy sources and ensures the same total revenue from just taxing non-renewable energy sources; C) Effects of scenario B including a gradual transition of the economic structure towards more use of renewables; and D) Effects of scenario C including a transition that reduces the energy intensity of the economic structure.

The results so far show how a reform (scenario B,) would improve the environment, reducing most of pollutant emissions. This effect is increased if we consider the effects of energy transitions (scenarios C and D).

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Regarding the economic effects, we observe a slight reduction of GDP in relation to the current situation if there is no transition. However, the energy transition boosted by the tax reform would improve the economic performance.

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Moreover, even in the less likely case of no energy transition, the reform can include a reform in the use of the revenues from these taxes. If they are used to reduce other pre-existing taxes, like labor, capital or consumption taxes a double dividend is achievable as we demonstrated in previous research.

 

New phase of the METRES project in Catalonia

In 2015 I was awarded with a Marie Skłodowska-Curie Individual Fellowship of the European Commission within the European research framework Horizon 2020. There are two types of this individual fellowship: European Fellowships (all research period conducted in Europe), and Global Fellowships (between 1-2 years outside Europe and 1 year inside). I applied for the latter, and already spent 1.5 years in Harvard (USA). In January 2018 started the return phase of the METRES project, so I am going to spend 1 year in my return host, ENT Environment and Management in Vilanova i la Geltrú (Barcelona), a SME policy-oriented consultancy specialized in environmental taxation.

My first task in my new post has been preparing the technical and financial reports for the European Commission for this 1.5 years period. With this duty all set, I have been able to move forward, and start this second phase of the project with a literature review of environmental taxes in Spain, with the aim of assessing different real tax scenarios with the models developed in Harvard. Another task I will start with in February is trying to keep improving the models. I am going to keep you posted on my progress in this blog.

Marie Skłodowska-Curie Fellowships are a good opportunity for young researchers who want to boost their careers, improving their research skills and cv, gaining experience abroad and meeting new interesting people. My experience so far is good. I had the opportunity to do research at a top University, and spend 18 months in the US. Regarding my research, I learnt a lot from top economists and had the opportunity to publish some of my research in important peer-reviewed Journals.

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Beyond the usual academic stuff, I experienced many other “unusual” things. Among the many experiences I had there: I could meet a lot of people with many different backgrounds from around the world (I can tell more than 15 different countries!); attend a Nobel Prize reception; have a lunch with the European Commissioner of Research, Science and Innovation; meet the former and the current president of Catalonia and work at the same study table of one of the Barack Obama’s daughters.

More details on Marie Skłodowska-Curie Fellowships can be found here. Open calls here.

Outgoing phase of the Metres Project completed

After 1.5 years in Harvard University, I have completed the outgoing period of my Marie Curie Individual Fellowship. From January 2018 I will start a new period of 1 year at ENT Environment and Management in Catalonia.

It has been a fruitful period, surrounded by an inspiring academic environment, where I have acquired new interesting skills for an academic and professional career and consolidated another ones. From the research perspective, and despite the difficulties, I have completed all the duties I had described in my research proposal for this phase.

A complete and very detailed dynamic CGE model with an energy and an environmental extension has been developed for the assessment of economic and environmental policies. It has 101 different industries and includes 31 different pollutant emissions at this industry level, as well as energy consumption. In order to test the double dividend hypothesis, different carbon taxes have been simulated, providing a methodology to test the effects of different possible taxes on other externalities, pollutants or resources. Beyond this, an Environmental Fiscal Reform has also been analyzed by levying several industries related to energy, transport, water and waste, and reducing other environmental damaging subsides. One article has already been published, and two other ones have been sent to important peer-reviewed Journals, and are currently under review. All this would not have been possible without the collaboration of Professor Jorgenson and Dr. Mun Ho, who have helped me and taught me a lot.

20171206_134041A new period starts now, with the aim of giving further purpose to the knowledge and tools acquired in Harvard. One of the aims of this year is to refine some aspects of the model, updating some of the data that feeds it, assess other kind of environmental tax policies and disseminate the results of the project.

I wish you a Merry Christmas and a happy new year!

Is a global Environmental Fiscal Reform effective? And what about the economic costs?

An Environmental Tax Reform (ETR) consists in transitioning the national taxation system from current pre-existing taxes on labor (personal income tax and social contributions), capital and consumption (VAT and other indirect taxes) to consumption and production activities that generate environmental pressures, without affecting the overall government revenues coming from taxation. This shift could provide better signals to economic agents and therefore, leading to a better functioning of markets. In a more general way, an Environmental Fiscal Reform (EFR) also includes the elimination of environmental harmful subsides.

But what would happen with the economic costs of such a reform? As stated in previous posts, the ‘double dividend hypothesis’ suggests that introducing environmental taxes and, at the same time using its revenues to reduce other taxes not only reduces environmental problems but also has a positive impact on the economy, if maintaining a constant level of total revenue and/or government expenditure. We showed a double dividend is possible by introducing a carbon tax, but what if we consider a broader fiscal reform?

Two big questions arise here: (1) Can an EFR be effective in terms of reduction of environmental loads? (2) Can an EFR trigger economic benefits (or at least no costs) if revenues from the reform are wisely used?

We used the dynamic computable general equilibrium model developed for the Spanish economy in the context of the METRES project, in order to test the double dividend hypothesis of an EFR. The model includes a sub-model describing the energy use and the emissions of 31 different pollutants. The EFR we simulated included adding/increasing a tax on 39 different industry outputs (out of 101 industries we detailed in our model), as well as reducing/eliminating subsides in the same industries. Specifically, this new tax would represent a 20% of total industry output, and subsides would be reduced by 20% of their total output too. Levied industries are related to energy sectors, water supply, sale of motor vehicles, water and air transport and waste treatment activities.

We set four different scenarios, related to revenue recycling: a reduction of taxes on capital, a reduction of taxes on labor, a reduction of value added taxes, and a scenario where revenues are not recycled, so there is more government spending. Environmental impacts are shown in figure 1 and economic effects in figure 2.

 

PollutantsFig. 1. Average annual percentage variation of different pollutant emissions under an EFR.

 

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Fig. 1. Percentage variation of GDP of an EFR under different tax recycling scenarios.

GDP is higher than the base case after the 3-4th year of implementation when revenues are used to reduce other taxes. All revenue recycling options provide economic and environmental benefits, suggesting that the ‘double dividend’ can be achieved.

A full article, describing the model, more results and implications of the research, have been prepared and will be soon submitted to a scientific Journal.

Happy Thanksgiving from Harvard!