Quantifying Impacts of Consumption Based Charge for Carbon Intensive Materials on Products

Abstract

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The impact of implementing a consumption charge on carbon-intensive materials in Europe

“…These charges are added to the unit costs of the sectors that consume the materials which, in the long run at least, will lead to higher product prices. The price increase in materials is estimated as the carbon price multiplied by the emissions per unit of production (from Pauliuk et al, 2016), multiplied by the share of the material in the more aggregate E3ME sector. This is added to the costs of the sectors that consume the materials.…”

“…The increase in costs of materials is estimated by multiplying the assumed carbon price by the number of emissions per unit of production of each material type (taken from Pauliuk et al, 2016). This is added to the non-tax material production costs to give a relative increase.…”

“…In the European context, the inclusion of consumption of carbon intensive materials into the European Emission Trading System (EU ETS) has been explored in detail (Neuhoff et al, 2016) and is an option for consideration by the European Commission in its mandate to keep the Directive under review in light of international developments and the efforts undertaken to achieve the long-term objectives of the Paris Agreement. Effectively, products sold to European consumers are subject to a charge that is proportional to the weight of the materials covered by the consumption charge, multiplied by a benchmark for the carbon intensity of the production of the material through a conventional production process (Pauliuk, Neuhoff, Owen, & Wood, 2016). Such benchmarks have already been defined and quantified for the free allowance allocation and power price compensation under the existing EU ETS and other emission trading schemes globally (Zipperer, Sato, & Neuhoff, 2017).…”

“…Furthermore, the model's data cannot be used to estimate price elasticities at such a detailed level and so we test our scenario with a range of different elasticities. The additional calculations carried out are based on Pauliuk et al (2016) and are described in the next section.…”

Inclusion of Consumption into Emissions Trading Systems: Legal Design and Practical Administration

“…98 Instead, a simplified version would suffice given the relatively low amount of the charge. 99 The movement of carbon intensive materials and the transfer of liabilities would thus be proven by commercial documents that are already required for VAT purposes e.g. invoice statements.…”