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An analysis of different carbon tax revenue
recycling schemes for South Africa
Articulation between climate mitigation and...
Objective of the study
An analysis of which carbon tax revenue recycling schemes have
the potential to achieve South Afric...
Content
1. Model characteristics
2. Drivers of growth & Reference Projection
3. CO2 tax scenarios
4. Key scenario results
...
Characteristics of IMACLIM-SA model
 An open economy CGE-model, in a one-step projection: 2005  2035
 Dual accounting o...
Drivers of Growth & Reference Projection (RP)
 No damage function for impacts of climate change
 Productivity increases ...
Scenarios for revenue recycling of a CO2 tax
 Basic approach of CO2 tax (Ctax) scenarios:
 Ctax levels: 100 and 300 ZAR2...
Results of CO2 tax scenarios
 Double dividend for Ctax 100 ZAR2005/tCO2 + Sales tax reduction
GDP/cap.
(BY = 100)
Broad
U...
Approach to modelling labour segmented by skill
 Common approach: Skill of labour ≈ Worker’s level of
education
 Future ...
Dynamics of skill-segmented labour in a CGE
1. Definition: What is labour by level of skill?
 Level of skill of the worke...
Results by level of skill
 Definition: What is labour by level of skill?
 Characteristic of a job type in production, re...
Conclusions
 We think that South Africa can achieve its economic, social and
environmental objectives for a large part th...
Thank you for your attention!
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Schers j 20150709_1430_unesco_fontenoy_-_room_ii

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Schers j 20150709_1430_unesco_fontenoy_-_room_ii

  1. 1. An analysis of different carbon tax revenue recycling schemes for South Africa Articulation between climate mitigation and key development objectives Jules Schers, CIRED Co-authors: Frédéric Ghersi, Franck Lecocq Supported by Agence Française de Développement (AFD) Our Common Future Conference Paris, Thursday 9 July 2015
  2. 2. Objective of the study An analysis of which carbon tax revenue recycling schemes have the potential to achieve South Africa’s multiple development objectives: • Economic: Increase GDP/capita & Reduce unemployment • Environmental: Reduce CO2 emissions by 42% vs baseline in 2025 • Social: Reduce unemployment, particularly among low- income households + Reduce unequal distribution of income With a special focus on revenue recycling through investment in skills of labour to reduce South Africa’s present skills shortage.
  3. 3. Content 1. Model characteristics 2. Drivers of growth & Reference Projection 3. CO2 tax scenarios 4. Key scenario results 5. Modelling questions for labour by level of skill 6. Results by skill, and for investment in skills 7. Conclusion
  4. 4. Characteristics of IMACLIM-SA model  An open economy CGE-model, in a one-step projection: 2005  2035  Dual accounting of quantities of energy & economic flows (hybridized)  Input and factor intensities for electricity production are informed by BU- model scenario outcomes (SATIM*)  10 Products/Sectors (of which 5 energy) in nested-CES production functions (except for electricity)  1 (physical) Capital factor & 3 Labour factors: High, Medium, Low Skill  Complementarity of Capital and High skill labour  Secondary distribution of income for agents: Firms, Government, 5 Households  Second-best features: mark-up pricing, and imperfect labour markets * Thanks to the support of the Energy Research Centre (ERC) of the University of Cape Town. For more info on SATIM, see: ERC. 2013. Assumptions and Methodologies in the South African TIMES (SATIM) Energy Model. Version 2.1, 2013/04/08. Systems Analysis & Planning Group, Energy Research Centre, University of Cape Town, Cape Town
  5. 5. Drivers of Growth & Reference Projection (RP)  No damage function for impacts of climate change  Productivity increases (in volume terms):  Capital: +2.0% /yr  Labour (all skill levels): +1.0% /yr  Materials & Services: +0.25%/yr  Trend in volume of exports: +1.5%/yr  Outcomes: GDP/cap Index Broad Unempl. CO2 emis. Index High/Low inc. ratio Base Year (BY, 2005) 100 39% 100 42 Ref. Proj. (RP, 2035) 216 29% 181 41
  6. 6. Scenarios for revenue recycling of a CO2 tax  Basic approach of CO2 tax (Ctax) scenarios:  Ctax levels: 100 and 300 ZAR2005/tCO2 (18 and 55 USD2012/tCO2)  Applied to direct emissions of energy consumption  No border tax adjustment, no Ctax export rebates  No foreign or international Ctax  CO2 tax Revenue Recycling schemes: 1. Reduce public deficit 2. Reduction of sales tax on final consumption 3. Reduce income and revenue taxes of companies & households 4. Increase government expenditure 5. Lumpsum transfer to all households
  7. 7. Results of CO2 tax scenarios  Double dividend for Ctax 100 ZAR2005/tCO2 + Sales tax reduction GDP/cap. (BY = 100) Broad Unempl. CO2 emis. vs. RP High/Low inc. ratio Reference Projection 216 29% - 41 Ctax 100 + recycling Deficit reduction 200 33% -25% 41 Sales Tax reduction 218 25% -20% 41 Income Tax reduction 201 31% -24% 42 Higher Gov. Expenses 205 28% -23% 40 Lumpsum transfer 201 32% -24% 30 Ctax 300 + recycling Sales tax reduction 209 26% -42% 41
  8. 8. Approach to modelling labour segmented by skill  Common approach: Skill of labour ≈ Worker’s level of education  Future educational attainment based on a conservative estimate versus IIASA projections for South Africa (K.C. et al., 2013)*  Initially, using "common" approach we project more high skill (28%) than low skill (21%) unemployment in 2035  Due to an increase / decrease of their share in labour force  Results obtained with strong complementarity between capital and high-skill labour  We need to reconsider the dynamics of supply and demand of labour by level of skill * K.C., S., et al. 2013. Summary of Data, Assumptions and Methods for New Wittgenstein Centre for Demography and Global Human Capital (WIC) Population Projections by Age, Sex and Level of Education for 195 Countries to 2100. IIASA, Laxenbourg
  9. 9. Dynamics of skill-segmented labour in a CGE 1. Definition: What is labour by level of skill?  Level of skill of the worker, e.g. the level of education: Constant Educational Attainment definition (CEA)  Characteristic of a job type in production, regardless of labour supply (positional): Constant Shares of Labour Force definition (CSLF)  A combination? Supply of high-skilled labour goes up with degree, but requirements for jobs go up too: Upgraded Qualifications definition (UQ) 2. What are the drivers for change of skill-intensity of production:  Changing productivity  Relative factor prices  Other drivers? 3. What is consumption’s role in demand for skills:  Are high-skill intensive goods in higher demand when people get richer? Do they have a higher income-elasticity than other goods?
  10. 10. Results by level of skill  Definition: What is labour by level of skill?  Characteristic of a job type in production, regardless of labour supply (positional): Constant Shares of Labour Force definition (CSLF)  Result: We now obtain a sharp decrease of unemployment for high skill  We also assess partly recycling a Ctax revenue in investment in skills  Result: if productivity effect is higher than +1% more annual productivity growth, then GDP/capita grows stronger than emissions, but only benefiting high skill labour Broad unemploym. Average High skill Medium Low skill Base Year (BY, 2005) 39% 26% 44% 41% Ref. Proj. (RP, 2035) 29% 10% 32% 41% Ctax100 + Sales tax 25% 7% 29% 37%
  11. 11. Conclusions  We think that South Africa can achieve its economic, social and environmental objectives for a large part through recycling of carbon tax revenue, likely by reducing VAT + equity measures.  We find that South Africa’s Copenhagen pledges can be achieved with a CO2 tax of around ZAR2005 300/tCO2 (USD2012 55) by 2035  To assess economic growth and employment by level of skill in a CGE setting we need an approach beyond "degree = skill"  CO2 tax revenue recycling through investment in skill of labour need a tailored approach in order to reduce inequality.
  12. 12. Thank you for your attention!

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