Flexible Emission Fees
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TemaNord 2012:511 TemaNord Ved Stranden 18 DK-1061 Copenhagen K www.norden.org Flexible emission fees An incentive for driving sustainable production and consumption Flexible emission fees An incentive for driving sustainable production and consumption This report explores the urgent question of how to transition to a green economy. If the price of pollution becomes the same as the price to not pollute, i.e. the investment required for a non-polluting solution, could market forces be harnessed to create a totally green economy? Would the consumer lead the way if pollution fees were simply credited into everyone’s account? Would economic growth and technical develop- ment forge ahead? Taking the flexible fee mechanism proposed by Höglund as a starting point, the report examines the academic litera- ture and presents the results of a workshop where leading Swedish economists and environmentalists examine the issues involved in price discovery mechanisms and call for further developments in this field. TemaNord 2012:511 ISBN 978-92-893-2335-2 2012511-Omslag-kor.indd 1 28-03-2012 11:38:40 Flexible emission fees An incentive for driving sustainable production and consumption Magnus Enell TemaNord 2012:511 Flexible emission fees An incentive for driving sustainable production and consumption Magnus Enell TemaNord 2012:511 ISBN 978-92-893-2335-2 http://dx.doi.org/10.6027/TN2012-511 © Nordic Council of Ministers, Copenhagen Print: Kailow Express ApS Copies: 250 Cover photo: Image Select Printed in Denmark This publication has been published with financial support by the Nordic Council of Ministers. However, the contents of this publication do not necessarily reflect the views, policies or rec- ommendations of the Nordic Council of Ministers. www.norden.org/pub Nordic co-operation Nordic co-operation is one of the world’s most extensive forms of regional collaboration, involv- ing Denmark, Finland, Iceland, Norway, Sweden, and Faroe Islands, Greenland, and Åland. Nordic co-operation has firm traditions in politics, the economy, and culture. It plays an im- portant role in European and international collaboration, and aims at creating a strong Nordic community in a strong Europe. Nordic co-operation seeks to safeguard Nordic and regional interests and principles in the global community. Common Nordic values help the region solidify its position as one of the world’s most innovative and competitive. Nordic Council of Ministers Ved Stranden 18 1061 København K Telefon (+45) 3396 0200 www.norden.org Content Preface........................................................................................................................................................ 7 Summary ................................................................................................................................................... 9 Introduction .......................................................................................................................................... 11 1. Description of the project ......................................................................................................... 13 1.1 Performance of the project ......................................................................................... 14 2. Results of the project .................................................................................................................. 17 2.1 The Literature review ................................................................................................... 17 2.2 The Workshop ................................................................................................................. 19 3. Conclusions .................................................................................................................................... 29 4. Recommendations ....................................................................................................................... 33 5. Sammanfattning ........................................................................................................................... 37 6. Appendices ..................................................................................................................................... 39 7. Appendix 1 ..................................................................................................................................... 41 7.1 Flexible fees as a driver for countering externality problems ....................... 41 7.2 Executive summary ....................................................................................................... 41 7.3 Project description ......................................................................................................... 45 7.4 Flexible fees as a driver for countering externality problems ....................... 49 7.5 The global challenge ...................................................................................................... 52 7.6 Background ....................................................................................................................... 52 7.7 Corporate view on present climate policies ......................................................... 58 7.8 Choosing Policy ............................................................................................................... 59 7.9 Policy Instruments ......................................................................................................... 63 7.10 A flexible CO2 fee ............................................................................................................. 72 7.11 Conclusions ....................................................................................................................... 75 8. Appendix 2 ..................................................................................................................................... 81 8.1 About the Foundation ................................................................................................... 81 8.2 The Foundation’s view: harness market forces to create a prosperous and pollution-free society.................................................................... 81 8.3 Global supply chains bring us all kinds of goods – and tie us into dependency on finite materials ................................................................................. 82 8.4 Waste represents a market failure and is a sign of inefficiencies ................. 86 8.5 The argument for restriction of emissions and material depletion ............. 88 8.6 Defining system boundaries for emissions control ............................................ 89 8.7 The argument against maximisation of gnp as progress yardstick .............. 90 8.8 Need to control emissions while retaining economic growth ........................ 91 8.9 The problem with regulation ..................................................................................... 92 8.10 The problem with emission rights trading ............................................................ 92 8.11 The problem with appealing to people’s good nature ...................................... 92 8.12 The promise of cleantech applied to existing technical infrastructure ................................................................................................................... 93 8.13 Description of Höglund’s fee mechanism............................................................... 96 8.14 How flexible fees affect corporations in the supply chain ............................. 100 8.15 The case for a transition account for all ............................................................... 101 8.16 Worked examples ......................................................................................................... 102 8.17 Benefits of the Höglund mechanism ...................................................................... 105 8.18 Q&A .................................................................................................................................... 107 8.19 Call To Action: Pilots And Demonstrations ......................................................... 108 9. Appendix 3 ................................................................................................................................... 115 9.1 A new method to reduce the emissions of greenhouse gases ...................... 115 9.2 Introduction ................................................................................................................... 115 10. Appendix 4 ................................................................................................................................... 127 10.1 Flexible Control Fees with Repayment ................................................................. 127 11. Appendix 5 ................................................................................................................................... 129 11.1 Beneficial Effects from Flexible Control Fees ..................................................... 129 12. Appendix 6 ................................................................................................................................... 131 Preface We are facing a dilemma: On the one hand we need to continue to ensure that our economy is sound, preferably with continued growth in the economy and increase in prosperity. On the other hand we need to transition our economic activities into a mode that halts climate system disruption, ensures that precious ele-