Workers or Consumers: Who Pays for Low-Carbon Transition – Theoretical Analysis of Welfare Change in General Equilibrium Setting

• Authors: Jan Witajewski-Baltvilks , Jakub Boratyński

Abstracts

EN

Policies that are introduced to mitigate adverse consequences of climate change involve economic costs. For some households, these costs will materialise in the form of an increase in prices of consumption goods, whereas for others they will materialise in the form of falling productivity and wages. Disentangling these two effects is important in the light of the design of funds that aim to support the households that are negatively affected by climate policy. In this article, we study the effect of carbon tax on welfare through changes of consumer prices and wages in a general equilibrium setting. In the first step, we review the literature on ‘top-down’ models, which are used to evaluate the macroeconomic cost of climate policy. We find that these models usually do not account for loss of productivity of workers who must change their sector due to climate policy. In the second step, we develop a theoretical, micro-founded, two-sector model that explicitly accounts for the loss of productivity of workers. The compensation of climate-change mitigation costs would require allocation of separate funds for the affected consumers and workers.

Keywords

EN

computable general equilibrium models; integrated assessment models; just transition; macroeconomic costs of transition; welfare compensation

• Publisher: Uniwersytet Warszawski. Wydział Nauk Ekonomicznych
• Journal: Central European Economic Journal
• Year: 2021
• Volume: 8
• Issue: 55
• Pages: 231-245

Dates

published

2021

Contributors

author

Jan Witajewski-Baltvilks

• https://orcid.org/0000000229440064

author

Jakub Boratyński

• https://orcid.org/0000000242882596

References

• Anderson, S. P., De Palma, A., & Thisse, J. F. (1987). The CES is a discrete choice model? Economics Letters, 24(2), 139–140.
• Anderson, S. P., De Palma, A., & Thisse, J. F. (1988). The CES and the logit: Two related models of heterogeneity. Regional Science and Urban Economics, 18(1), 155–164.
• Antosiewicz, M., Nikas, A., Szpor, A., Witajewski-Baltvilks, J., & Doukas, H. (2020). Pathways for the transition of the polish power sector and associated risks. Environmental Innovation and Societal Transitions, 35, 271–291. https://doi.org/10.1016/j.eist.2019.01.008.
• Ashenfelter, O. C., Farber, H., & Ransom, M. R. (2010). Labor market monopsony. Journal of Labor Economics, 28(2), 203–210.
• Balistreri, E. J., & Rutherford, T. F. (2013). Computing general equilibrium theories of monopolistic competition and heterogeneous firms. In P. Dixon, D. Jorgenson (Eds.), Handbook of computable general equilibrium modeling (pp. 1513–1570). Elsevier.
• Baran, J., Szpor, A., & Witajewski-Baltvilks, J. (2020). Low-carbon transition in a coal-producing Country: A labour market perspective. Energy Policy, 147, 111878. https://doi.org/10.1016/j.enpol.2020.111878.
• Boeters, S., & Savard, L. (2013). The labor market in computable general equilibrium models. In P. Dixon, D. Jorgenson (Eds.), Handbook of computable general equilibrium modeling (pp. 1645–1718). Elsevier.
• Böhringer, C. (2000). Cooling down hot air: A global CGE analysis of post-Kyoto Carbon Abatement Strategies. Energy Policy, 28(11), 779–789.
• Böhringer, C., & Rutherford, T. F. (2000). Decomposing the cost of kyoto: A global CGE analysis of multilateral policy impacts. ZEW Discussion Paper No 00-11. https://doi.org/10.2139/ssrn.374764.
• Böhringer, C., Rivers, N. J., Rutherford, T. F., & Wigle, R. (2012). Green jobs and renewable electricity policies: Employment impacts of ontario’s feed-in tariff. The BE Journal of Economic Analysis and Policy, 12(1). https://doi.org/10.1515/1935-1682.3217.
• Booth, A. L., & Katic, P. (2011). Estimating the wage elasticity of labour supply to a firm: What evidence is there for monopsony? Economic Record, 87(278), 359–369. https://doi.org/10.1111/j.1475-4932.2011.00728.x.
• Bureau, B. (2011). Distributional effects of a carbon tax on car fuels in France. Energy Economics, 33(1), 121–130. https://doi.org/10.1016/j.eneco.2010.07.011.
• Cronin, J. A., Fullerton, D., & Sexton, S. (2019). Vertical and horizontal redistributions from a carbon tax and rebate. Journal of the Association of Environmental and Resource Economists, 6(S1), S169–S208.
• Da Silva Freitas, L. F., de Santana Ribeiro, L. C., de Souza, K. B., & Hewings, G. J. D. (2016). The distributional effects of emissions taxation in Brazil and their implications for climate policy. Energy Economics, 59, 37–44. https://doi.org/10.1016/j.eneco.2016.07.021.
• Davis, L. W., & Knittel, C. R. (2019). Are fuel economy standards regressive? Journal of the Association of Environmental and Resource Economists, 6(S1), S37–S63. https://doi.org/10.1086/701187.
• Dixon, P., & Rimmer, M. T. (2002). Dynamic general equilibrium modelling for forecasting and policy: A practical guide and documentation of MONASH (Vol. 256). Elsevier.
• Dixon, P., & Rimmer, M. T. (2008). Welfare effects of unilateral changes in tariffs: The case of motor vehicles and parts in Australia. Working Paper No. G-177, Centre of Policy Studies (CoPS).
• Dixon, P., Jerie, M., & Rimmer, M. T. (2016). Modern trade theory for CGE modelling: The Armington, Krugman and Melitz models. Journal of Global Economic Analysis, 1(1), 1–110.
• European Commission. (2020). Commission Welcomes the Political Agreement on the Just Transition Fund. Press Release, December 2020. https://ec.europa.eu/commission/presscorner/detail/en/ip_20_2354 [Accessed 4 January 2021].
• Growiec, J. (2013). A microfoundation for normalized CES production functions with factor-augmenting technical change. Journal of Economic Dynamics and Control, 37(11), 2336–2350.
• Hanslow, K. (2000). A General Welfare Decomposition for CGE Models. GTAP Technical Paper No. 19, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University. https://www.gtap.agecon.purdue.edu/resources/download/185.pdf.
• Huang, H., Roland-Holst, D., Wang, C., & Cai, W. (2020). China’s income gap and inequality under clean energy transformation: A CGE model assessment. Journal of Cleaner Production, 251, 119626.
• Huff, K., & Hertel, T. W. (2001). Decomposing welfare changes in GTAP. GTAP Technical Paper No. 308, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University. https://ideas.repec.org/p/gta/techpp/308.html.
• IPCC (2014). Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. https://www.ipcc.ch/report/ar5/syr/.
• Kiuila, O. (2018). Decarbonisation perspectives for the polish economy. Energy Policy, 118(C), 69–76. https://doi.org/10.1016/j.enpol.2018.03.048.
• Küster, R., Ellersdorfer, I. R., & Fahl, U. (2007). A CGE analysis of energy policies considering labor market imperfections and technology specifications. FEEM Working Paper No. 7.2007. https://doi.org/10.2139/ssrn.960725.
• Leipprand, A., & Flachsland, C. (2018). Regime destabilization in energy transitions: The German Debate on the future of coal. Energy Research & Social Science, 40, 190–204. https://doi.org/10.1016/j.erss.2018.02.004.
• Levinson, A. (2019). Energy efficiency standards are more regressive than energy taxes: Theory and evidence. Journal of the Association of Environmental and Resource Economists, 6(S1), S7–S36.
• Manning, A. (2003). Monopsony in motion: Imperfect competition in labor markets. New Jersey: Princeton University Press.
• Mas-Colell, A., Whinston, M. D., & Green, J. R. (1995). Microeconomic theory (Vol. 1). New York: Oxford University Press.
• Matveenko, A. (2020). Logit, CES, and rational inattention. Economics Letters, 186, 108537.
• Melitz, M. J. (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71(6), 1695–1725.
• Rengs, B., Scholz-Wäckerle, M., & van den Bergh, J. (2020). Evolutionary macroeconomic assessment of employment and innovation impacts of climate policy packages. Journal of Economic Behavior & Organization, 169, 332–368.
• Riahi, K., van Vuuren, D. P., Kriegler, E., Edmonds, J., O’Neill, B. C., Fujimori, S., … & Tavoni, M. (2017). The shared socioeconomic pathways and their energy, land use, and greenhouse gas emissions implications: An overview. Global Environmental Change, 42, 153–168. https://doi.org/10.1016/j.gloenvcha.2016.05.009.
• Rogelj, J., Popp, A., Calvin, K. V., Luderer, G., Emmerling, J., Gernaat, D., … & Tavoni, M. (2018). Scenarios towards limiting global mean temperature increase below 1.5 °C. Nature Climate Change, 8(4), 325–332.
• Sartor, O. (2018). Implementing coal transitions. Insights from case studies of major coal-consuming economies. IDDRI and Climate Strategies.
• Skoczkowski, T., Bielecki, S., Kochański, M. & Korczak, K. (2020). Climate-change induced uncertainties, risks and opportunities for the coal-based region of Silesia: Stakeholders’ perspectives. Environmental Innovation and Societal Transitions. 35, 460–481. https://doi.org/10.1016/j.eist.2019.06.001.
• Spencer, T., Colombier, M., Sartor, O., Garg, A., Tiwari, V., Burton, J., … & Wiseman, J. (2018). The 1.5 °C target and coal sector transition: At the limits of societal feasibility. Climate Policy, 18(3), 335–351. https://doi.org/10.1080/14693062.2017.1386540.
• Swilling, M., Musango, J., & Wakeford, J. (2016). Developmental states and sustainability transitions: Prospects of a just transition in South Africa. Journal of Environmental Policy & Planning, 18(5), 650–672, 2016. https://doi.org/10.1080/1523908X.2015.1107716.
• Turnheim, B., & Geels, F. W. (2012). Regime destabilisation as the flipside of energy transitions: Lessons from the history of the British Coal Industry (1913–1997). Energy Policy, 50(C), 35–49. https://doi.org/10.1016/j.enpol.2012.04.060.

Identifiers

DOI

10.2478/ceej-2021-0017

Biblioteka Nauki

1964871