Henrike Koschel

Efficiency Losses from Overlapping Economic Instruments in European Carbon Emissions Regulation

Energy markets and energy-intensive industries in all EU member states – especially in Germany – are subject to a diverse set of policies related to climate change. We analyse the potential efficiency losses from simultaneous application of emission taxes and emissions trading in qualitative and quantitative terms within a partial equilibrium framework for the EU. It turns out that those firms within the EU Emissions Trading Scheme (EU ETS) which at the same time are subject to domestic energy or carbon taxes will abate inefficiently much while other firms within the EU ETS will benefit from lower international emission permit prices. The same logic disproves the argument that additional national emission taxes will reduce inefficiencies in abatement supposed to be resulting from allowance (over-) allocation. In essence, unilateral emission taxes within the EU ETS are ecologically ineffective and subsidise net permit buyers. Thus, all firms that are subject to emissions trading and any CO2 emission taxes at the same time should be exempt from the latter. The foregone tax revenue could be generated by auctioning a small fraction of the permits instead. This would be cheaper for the emissions trading sectors as a whole and could be compatible even with the tight auctioning restrictions of the EU directive.

Empirical macro models under test. A comparative simulation study of the employment effects of a revenue neutral cut in social security contributions

In the paper we simulate a revenue-neutral cut in the social security contribution rate using five different types of macro- / microeconomic models, namely two models based on time-series data where the labour market is modelled basically demand oriented, two models of the class of computable equilibrium models which are supply oriented and finally a firm specific model for international tax burden comparisons. Our primary interest is in the employment effects the models predict due to the cut in the contribution rate. It turns out that qualitatively all models considered predict an increase in employment three years after the cut. But the employment effects differ considerably in magnitude, which follows immediately from the different behavioral assumptions underlying the different models.

A regulatory framework for a policy of sustainability: lessons from the neo-liberal school

In this paper targets, institutions and policy measures for describing and implementing sustainable development are evaluated in terms of their conformity with the economic framework of a market system. Firstly, from the viewpoint of neo-liberal economic thinking as conceived by the German Freiburg school of economists (Eucken), a general set of criteria is developed, including issues of operationalization and legitimation of goals as well as institutional and instrumental issues. On this basis general rules for designing an ecological framework guaranteeing the greatest possible degree of conformity with a market system are derived. The concrete application of these rules leads to recommendations for a policy of sustainability with respect to the setting of goals, the establishment of institutions (role of ecological councils, of a central environmental organization on UN level and of the GATT/WTO regime) as well as the use of appropriate instruments.

Substitution Elasticities between Capital, Labour, Material, Electricity and Fossil Fuels in German Producing and Service Sectors

In this paper, substitutional relationships between capital, labour, material, electricity, and fossil fuels in German producing and service sectors are estimated using a translog cost function. Estimates are based on a pooled time-series cross-sectional data sample for the period 1978-90 and nearly 50 sectors reported by the national account statistics. Results indicate that, except for the service sectors, own-price elasticities of all factor demands are below 0.5 (in absolute terms). In terms of the Morishima elasticity of substitution, labour and capital are substitutes in all sectors. Labour is generally a substitute for electricity, but not for fossil fuels. Results also support the hypothesis of capitalenergy substitutability and that the German economy is characterised by a nonhomothetic, non-constant-returns-to-scale production function. Substitution elasticities between input aggregates are estimated based on the nesting structure which underlies the computable general equilibrium model GEM-E3. Testing for weak homothetic separability restrictions, however, yields that input aggregation is allowed only in particular cases. Simulations with the GEM-E3 model demonstrate that the impacts of an ecological tax reform respond to a variation of substitution elasticities, but, all in all, the model proves to be relatively stable within a plausible range of values.

Not Employed 37 Hours or Employed 41? - a Cge Analysis for Germany

The objective of our analysis is to find out whether an increase in working time without pay compensation can be considered an adequate policy to reduce unemployment. From the perspective of economic theory the outcome is in general ambiguous: On the one hand, as the increase in working time raises labour productivity per employee, conditional demand for labour will increase (substitution effect) and conditional demand for intermediate inputs will decline. Since, on the other hand, workers do have a longer working time anyway, no positive effect on the number of persons employed can be expected. However, output of the manufacturing industry, and thus unconditional demand for labour, capital and intermediate goods, will increase (output effect). In order to sell the additional output, firms have to lower prices. Depending on the price elasticities, revenues and hence profits will change. We quantify the employment effects of an economy-wide increase in weekly normal hours in Germany on the basis of a CGE model using an input-output framework for all sectors of the economy. Our simulation results support the argument of the opponents of longer working time that not more jobs will be created. However, when we recycled the higher tax revenues from GDP growth to lower the contribution to social security, then we have been able to support the claim of the proponents that more jobs will be created.

Beschäftigungswirkungen umweltpolitischer Instrumente zur Förderung integrierten Umweltschutzes

Wie der Sachverstandigenrat fur Umweltfragen in seinem 1994er Gutachten anmerkt, setzt „die Ablosung der bisherigen, mit additiven Schutzmasnahmen operierenden Produktionsweisen durch Verfahren des produktionsintegrierten Umweltschutzes nicht von selbst - als Wettlauf zwischen den Unternehmen - ein“ (SRU 1994:133). Der Umweltrat fordert daher eine Umweltpolitik, die entsprechende dynamische Innovationsanreize auslost, d.h. ein Anreiz zu umwelttechnischem Fortschritt gegeben wird.

Internalisation of Externalities

The internalisation of external effects is an important policy guideline in the Energy and Environmental policy at EU level. The objective of this chapter is to evaluate the macroeconomic and welfare impacts of a policy aiming at applying this guideline to the externalities generated by energy consumption. It will also contribute to a comparison of an integrated policy approach towards air compared to a policy addressing only the global warming issue. In most sectors these emissions are one of the main sources of external cost. A policy scenario will be defined in which an environmental cost is applied on the emissions in proportion to the damage generated by these emissions.

The Role of Accompanying Policies

The emission-constrained cases impose additional costs to all producers and consumers. This additional cost, being necessary to reach the target, depends on the equilibrium shadow cost per unit of emissions, which is computed at the EU level. Mathematically, the mechanism is exactly equivalent to the imposition of that level of carbon tax (uniform across the EU) that is necessary to reach the target.

The Role of Energy Saving Investment

In this simulation the model is modified to incorporate the additional possibility of investing in energy-saving technology. In this context economic agents are assumed to have the possibility to increase the productivity of energy (i.e. consume less energy inputs per unit of output) by investing some resources to accumulate an energy-saving technology stock.

A European Model for Tradeable SO2-Emission Permits

In the context of SO2-emission reduction the United Nations Economic Commission for Europe states, that “In order to deal with this inherent uncertainty [on abatement costs], countries could be given some flexibility in how they meet their commitments. One way is to give countries the option to exchange emission reduction commitments. […] The possibility for exchange will contribute to cost-effectiveness in the allocation of abatement measures over time …”.