 Good afternoon and welcome to today's energy seminar. Sadly, this is the last energy seminar for this academic year. We will resume activities on September 26th in Falkwooder. We have a real treat today. We have our first speaker who actually has come from outside our hemisphere since COVID started. Chris Florenger started his career with a degree in industrial engineering at the Technical University of Karlsruhe, and interestingly then got a doctorate in economics at the University of Stuttgart. He kind of made a meteoric rise through the environmental engineering and economics community in Europe. And now I would say is one of the best known energy transition technical economists in certainly Germany, probably in Europe and most likely the rest of the best of the world as well, which leads him to his current position as Professor of Economic Policy at Luskowski University in Oldenburg, Germany. And he's gonna talk to us today about a major study that he helped run and participated in on climate policy after Paris pledged trade and recycle conveniently given the timing refocusing the attention on equity, both internationally and domestically, but within a kind of standard economic equilibrium modeling framework in which Chris is one of the leading practitioners with several colleagues I might add around the world. So Chris, take it away. John, thanks a lot. I'm happy to be here. And as John pointed out, I'm going to present a short summary on a more recent energy modeling forum study. I assume here in this room you are not allowed to go in if you don't know what the energy modeling forum is. So I will not stay with that. That modeling study deals with the issue on emissions pricing or carbon pricing post-Paris, meaning after the Paris Agreement. And just to give some credits beyond the support by John and his staff, we had financial support by the German Federal Ministry of Educational Research. And meanwhile, all the results have been summarized in a special issue in energy economics where John together with Richard Paul is an editor. And so all the slides, meaning all the tables of figures that you are going to see, not too many, can be found in that paper unless I have mentioned a different source. So you can read things and look things up and check. So given the limited time, I think 40 minutes roughly for presentation and then 10 or 15 minutes for discussion, I focus myself on two blocks. One is introduction to the broader issue where I was not so clear that you are in need too much in economics or more to the engineering side. So I was cautious, thought you are more on the engineering side. So I will raise some principles of economics that make climate policy a real challenge. And then I also summarize right away the key insights with two messages of the study. Before in the second point of block, I go in the study design and discussing more detail the results. So climate policy theory and practice, a short primer maybe. If you come from a narrow economic perspective, it seems standard how to address the problem of consulting policy makers, what to do about climate change, what would be an optimal emission reduction path, including what would be the temperature that we should go for. The principal idea is at the margin, you trade off the efforts of emission abatement, the cost of emission abatement against the benefit of emission abatement and that would be the avoided climate damage. So this is the, in a nutshell, this is neoclassical marginal cost benefit analysis. And I think all of you are familiar with that in the context of optimization in various contexts. So cost benefit analysis applied to climate change. Typically it takes place in integrated assessment. John had a couple of really nice review papers on that. I think one in 2014, the last one I saw was 2018, discussing the limitations but also the strengths of these models. And maybe you know the seminal reference to integrated assessment towards the colleague Bill Northaus at Yale, the DICE model, fundamentally for the concept of such a model he was rewarded the Nobel Prize. So in a nutshell integrated assessment model combines concepts of economics, see economic growth with natural science, translates economic activity into emissions, into changes of the climate, meaning concentration changes and then temperature changes, these feedback via climate damages and effect economic growth. You do that in a circle when you get an integrated assessment model. And in this context, you can trade off the cost and the benefits at the margin of doing more abatement. If we look then at the insights of such a division of DICE, then what you see here to the left and other side is what would be an optimal emission path. And you see, we started 40 gigatons of CO2 in 2015, that's our global industrial CO2 emissions, more or less. And then we still have some rise, maybe until COVID 2020. And then you see from that onwards the model calculates what would be the emission reduction path because we go in the future. So it's intertemporal optimization and it would basically tell you what is at the margin the best thing to do and give you the emission reduction path. You see here three lines, the black line would be what North houses model with his discount rate would suggest. So there is a big debate on the right discount rate. As you may know, if the climate damage occurs in the future, it matters a lot with what discount rate you, the damage translates more like one to one in present value. And if it's high, then some damage in the future, you would not care. So the higher the discount rate, the more you would actually go with emissions and less abatement. So that was the black line by North house and there was a debate what's the right discount rate. Green and blue are now export poles that lower that. I think that's not so important now in our context. It all shows that from an optimal perspective, you have to go down. And then that leads you to optimal temperature targets at the end of the century of two degrees or 1.8 or 1.5. At the moment, the whole debate is about do we reach 1.5 when North house was given the Nobel Prize, I think there was some unease with the integrated assessment community, at least with some people. Because in his initial runs, he suggests optimal is 3.4 degrees. And if I tell that my kids say, well, then we are all dead and burned or whatever. And so what I do now here, what I present now here is an update of the DICE model which was published in Nature Climate Change by folks from the Potsdam Climate Institute. I can't really judge whether they are better or worse in terms of damage evaluation because the big difference between the black line and the green line, meaning the black line, sorry, the black line that leads to two degrees in North house update and the 3.4 that he used for the Nobel Prize talk is fundamentally has a lower damage function. So it's your damage functions play a big role. The higher the damage, the more you will obey it. And then the discount rate. But beyond this discussion, what you see is if we now confront theory from an optimal control perspective with what's the policy practice. I just snapshot yesterday where what you call the climate tracker or something like that, climate action tracker, still from November, 2021, on if we add up the bledges of the world community of different countries around the world under Paris agreement. And when we make some assumption on, maybe there are conditional targets and you could be more optimistic or less optimistic. When you get these range of outcomes, this is all like, it's not arbitrary but it's based on equitable assumptions but let it take like this. I think the message here is we are far off from say 1.5 and especially in the short run, if you think about 2030, which is one milestone of the Paris agreement before short by a substantial gap of what is recommended from an optimal cost-benefit analysis recommendation towards what people are doing. And we can go to the next. Sorry, I'm a little bit out of breath because I'm normally not used to use my. So the question is, how could we explain? So if somebody, if we believed in economics, let it be like this for the time being. And somebody told us you should debate more, temperature should go down more than just to 3.4 degrees. Why wouldn't we do that? And the principles in economics that has been detected to explain that irrational gap between what is optimal and what is real is called free-riding. And this is fundamentally the issue that the models that I talked about are run from a social planner perspective which optimizes above or over the whole globe. There's in reality, we have different agents that they match. So do the best in their own interest and then we have a free rider incentive which may lead to something that you call the tragedy for Cummins. So although it would be good that we really scale back emissions, anybody has an incentive not to do it to free ride on abatement of others without incurring costs themselves. So this free riding problem is very strong in climate because typically take Germany, even you can take the US, whether you do something or not will not affect the climate too much in the long run. So the incentive is very, very big because the difference between the social optimum and what is the Nash optimum typically is quite big. So this free riding problem could occur within a generation but it is multiplied or magnified in the climate context through climate dynamics which makes this climate policy challenge even worse. It takes very, very long time if you obey today that this emission abatement in the stock of emissions basically during climate is hundreds of years and not tens of years. And so what I show you here is a little example from Merge which is a suggestive model of some professor here, Ellen Mann years ago. Ita Makro together with Richard Schultz. They built this integrated assessment model, I would say similar to DICE, a little bit more technology rich because they are from Stanford and are more about does energy matter, does party play matter and so on and so forth. But anyway, whether it's DICE or Merge, you would typically get a profile on the net benefits of abatement which looks like this. So if you take the box of this, you see the net benefit by decade of emission discounted in that present value, meaning with this example that starts in 2010, so 10 years, then you see that it takes a couple of decades until the net benefit within the decade is even positive. If you do the integral, then you get the line so this would be the cumulative net benefits. So with the cumulative net benefits it even takes much longer before you break even. So 2017 in this case. And then another thing is that if you look at the most of the benefits are shifted or occur in the future and that has simply to do with climate dynamics. So this is nothing about economics but it means that climate investment take a very, very long breath. And if the discount rate is low then it's a big challenge to actually justify rapid decarbonization today. So to some extent I think what policy makers are then faced to is okay they can take the recommendations by people like John or Bill Northaus and say, well okay we should debate 1.5 and 2 degrees. And in fact they do it because everybody talks, it's maybe cheap talk about 1.5 and 2 degrees. But I think in actual and contemporary policy making they are just faced with the old same story which is burden sharing. How much cost can be shoulder to be re-elected next year on three years or four years. And this burden sharing issue dominated I think all the time going back to Kyoto where at some point the US backed out and said well you know it doesn't make sense that you go ahead if China is not in the boat and so on and so forth the Bert Hegel's resolution at that time. And we see it again now in the Paris Agreement. The Paris Agreement as you may recall is a bottom up contract where people, I would say under pressure of the world community came together policy makers and then they said we have to show something at least. We have to show that okay maybe cheap talk we want to reduce emissions so 2 degrees is something which is suggested by Integrated Assessment so celebrate but then we also have to put some flesh inside but the flesh as we have seen but put inside is way below what is needed. So in that context I want to motivate the EF study because it's all about how can we increase the current pledges for the next round and the next round would be 2023 or five years later 2028 so how can we make countries in the phase of Bertenscheng do more than they actually committed to. That's the key challenge of how to increase ambition of NDCs national determined contributions without losing policy support. So that brings me I think to the second part of the talk. I only for people if some people want to leave already I give you the summary of results already here. So you also you have to get somehow a catchy title so we call this the summary or the study title is then Bletch so we have to increase this Bletch's trade and recycle and the idea here is that trade will allow you to raise cost savings as I will explain in a second this cost savings can be used to increase your pledges and we will see that this based on numbers we calculate spletches can be ramped up quite considerably so to basically fill that gap that we saw before and then there's still the issue about Bertenscheng sharing within societies so what's about the poor person who can't afford any longer electricity and then has to use the candle, right? I have to introduce actually a little picture from Edison where he at some point said listen we will make electricity so cheap that only the poor people only the rich people can actually afford candles but as you have seen before it's just the other way around me while and with the petrol prices you see again the challenge that we are facing with higher energy prices. So the idea then is first how to actually without overcharging the willingness to pay of countries in the international climate debate how to raise the pledges and the simple answer is if there is scope for saving cost in emission abatement you could take this cost savings and thinking that the initial pledges have been the willingness to pay of the countries and if there is no extra cost now to ramping up pledges because you just use efficiency gains from trading then at least I think this is a natural way to say well, let's do it. There is no to actually burden the country it's burdened country with more with more cost than before. And that's simply I don't I go too much inside this graph on the right hand other side this is simply a textbook graph every see a marginal abatement cost curve so what costs at the margin to reduce emissions for country A or for country B you see these convex curves and by optimization it's clear that you trade off there's no arbitrage more or less so abatement costs between the two countries should be equalized that's at the intersect and if you have different pledges that lead to different points on the mock curves and there is no balancing mechanism like emissions trading you basically have additional costs which are the red line a red area and the blue area and for reducing this cost or reaping efficiency gains through cooperation would suggest emissions trading that's a very, very old story and I think John you did that quite a bit in the EMF 16 study back to Kyoto, 1999 or 2000 so that's the one idea what we basically show in the study is across models, across simulation analysis that the cost savings from carbon trading in the actual Paris context is big enough to pay for a two degree compatible pledge so actually to close the gap that we have seen before in the slide a couple of minutes ago the other issue is about well how can we go about the problem that if we raise energy prices and we realize that low income people have a higher expenditure share on energy that these are hit more than the rich people so you call this effect that lower people are burdened more than richer you call this a regressive effect and I just show you some numbers from the German income expenditure survey where you see across household deciles age one to age 10 where the poorest household actually spends say 20% of income on transport heating and electricity whereas the richest just 10% right so that means a carbon tax carbon prices increases oil, coal and gas that is used for providing transport heating and electricity services will typically be regressive the good news is that with carbon pricing you get rents you make something shorter you put a shadow price on it so in economic terms that gives you rents the government can collect these rents and it can recycle the rents and the crucial question now is how to recycle the rents so the more or less new idea now is to say we take the rents and we recycle it on an equal share per household and that means if John is much richer than me which I assume of course you know and we get 500 bucks him and me then the 500 bucks for me will be much more relative terms than for him so this means this is a progressive effect right so it basically punishes the rich and helps the poor and if you simply apply this little story or mechanism in terms of we raise energy prices we do a little input-output calculation so the IO is now input-output calculation when we see how you are hit on the expenditure side with higher prices but when you get back the equal per capita bonus like 300-400 bucks then you see that the regressive impact can be offset by the progressive income effect or recycling effect and these two ideas these carry through the whole study and show that this applies to most of the countries and so these are the two key features of the study so now I'm back to say one of the technical details of the energy modeling forum study you as I said you may be acquainted with the overall idea and design of this study basically it's about the modeling puzzle so you are policy makers all of you run a model say 40 models and everybody comes up with a different number the numbers are very tight and very close together you would say okay but if they even have differences in sign you are puzzled and so this of course is not good for the modeling profession and it doesn't mean good in terms of making money it means in terms of providing advice and intellectual intellectual value added and that was basically I think the idea of the energy modeling study forum years ago to say well how could we how could we solve this problem and relax it well we establish for certain policy questions every so often we establish groups of modelers around the world which share similar assumptions on data so you streamline part of the study but then you give a certain leeway that every group can control but it's still not too much so you can't cross-compare so the idea is when at the end of the day you come together you have some solid common foundations but then you can say well why are you getting the double of a s or why are you a negative sign and so on so forth and then you discuss and you basically may remodel and idea that is to come up with robust policy recommendations so again this is basically the background of this study where we said well they want first to do an impact estimate of what it means countries implement their nationally determined contributions meaning their regional emission reduction targets by 2030 this has been done by lots of people how it's done in a coordinated exercise and then we have these two key issues in mind how can we write up the pledge how can we how can we make it bigger magnified and where we think about emissions trading which is an old story but we basically put it in a in a real policy context here and then the issue is about the household incidence of CO2 pricing and we had in this analysis we had seventeen modeling groups which share scenario assumptions I will mention them in a second they have harmonized input data you know there are some databases which are shared and global like g-tab database global trade analysis project in portue then of course because you think of the future we are now twenty twenty two and uh... we need to think about twenty thirty so one issue is what is the base and what does the world look like in twenty thirty of course it's arbitrary but you have to base some assumptions here make some assumptions and we use them for example here we do sensitivity analysis but the main results I present now are projections by the international energy outlook on baseline emissions in the different countries and GDP growth up to twenty thirty and then of course at the end people have to streamline the results you know it's it's it's sounds a little bit uh... trivial but boy if you are in the coordinator and somebody gives you the results in an excel sheet and number one in the csv text file and they are not using the same labels this kills you given that you know one one really great achievement of mf is to have international and global coverage for many studies so here uh... you know we have a couple of it's a little bit Eurocentric here a couple of european countries but I think if you have a global exercise where modeling groups from different countries participate that's a strong policy sign as well if they come up with a meaningful and robust inside okay so we can go to the next so this is a flowchart of the basic workhorse and i didn't show a flowchart of integrate assessment model but that part would could be part of an integrated assessment model if it only focused on economics and what you see here is more less a visualization of the output table and the bilateral trade matrixes and these are simply put in formulas where you say depending on relative prices people produce more from one good or the other good they take more input from the one thing or the other thing they trade more and so on so forth so fundamentally you have uh... you think about how much of a commodity i in region r should i produce so you have different sectors that's the input output matrix that's the first quadrant that's the intermediate flows between uh... say the steel industry the milk industry and so on so forth in u.s. for producing you need primary factory inputs which maybe labor and capital and also need intermediate inputs so i think i could use this guy so here you produce you take uh... factory inputs and what you put on thanks a lot happy to be here and uh... as john pointed out i'm going to present short summary on a more recent energy modeling for a study i assume here in this room you are not allowed to go in if you don't know what the energy modeling forum is so i will not stay with that that modeling study deals with the issue on uh... emissions pricing or carbon pricing post paris meaning after the parents agreement and uh... just to give some credits uh... beyond the the support by john and his staff we had financial support by the german federal ministry of educational research and meanwhile all the results have been summarized in a special issue in energy economics where john together with Richard Paul as an editor and uh... so all the slides meaning all the tables of figures that you are going to see not too many uh... can be found in that paper unless i have mentioned a different source so you can read things uh... and look things up and check so given the limited time i think forty minutes roughly for presentation and then uh... ten or fifteen minutes for views you basically combine with what you get from imports from other regions to uh... a mixed good which in in fact you've been reuse as an intermediate input or you basically consume and how much you consume depends on your income so this is an income closure so you get income from labor and capital and we spend it on consumption that could be a government agent with taxes and so on so forth and then of course apart from domestic relationship you also export to other regions as you import so this is more or less if you such a model to take a multi region multi-sector cg model you basically have a snapshot of the international world uh... that you all of the models maybe this is a big side of the project i'm not sure all of the models share this structure uh... so they are relatively uniform within this modeling paradigm there are different ways how you could represent trade if somebody is more interested in trade you have trade theory have a new trade theory you have a new theory uh... and all of them become or claim that they are better in explaining what's going on and uh... these models could basically reflect different rate paradigms but again they share like uh... common mainstream perspective here so that later on will not really explain the variation results it's mostly still data and assumption driven in terms of elasticity is so what is that why is this uh... type of model so popular on the one hand it can cover this aspects of international competitiveness because to talk about multiple regions multiple sectors that are engaged in domestic production consumption and trade then i think that really plus point against like macro econometric models is that they are very much rooted in microeconomics so you can do very consistent uh... welfare analysis therefore i call my classes if i do something like computational economics i call it theory with numbers so to some extent you take theory and then you put numbers to it and you produce numbers out of it uh... another aspect is that you have it's uh... why is it called general because it has not a narrow view on on one single market uh... or basically just looks on the expanded side of the household no it has the whole cycle of how is revenue created and how is uh... income spent uh... for example if you think about incidence analysis in many fields taxation uh... you use micro simulation models and they very often only focus on the expenditure effect so how are different households affected with different taxes but of course the taxes will affect in the capital markets in the labor markets and so on the income side you may actually also be very much affected by this changes and that would be something that you capture here so fundamentally what these models then do is we have an instrument and in our case that will be an emission budget the emission budget will be curtailed because you have to to make up the view of lectures that's been a technical term prices of the shadow price which is the carbon price and the carbon price makes all things more expensive than using carbon you have structural adjustment because all these activities are prices sponsored supply and demand okay so uh... i go quickly through that so i told about streamlining assumptions so we focus on certain regions in certain sectors and uh... we don't need that now uh... and then i think uh... before i go in the last three or four slides with the results uh... it's important that you understand the scenario dimensions uh... so we limited the scenario dimensions basically to two aspects one is the ambition level so that would be what we call the NDC and our reference would be the NDC as they are made under the under the Paris Agreement so how much the U.S. pledged whatever twenty five percent as compared to nineteen ninety the EU pledged forty percent Russia pledged zero or five percent so uh... this basically they have a handshake with reality i would call it like that when the NDC plus also written down commitments by countries that say well if the U.S. does five percent more we do one percent more so this is conditional so therefore we call it NDC plus that's already mentioned in all the communications between the national governments and the authorities under the Paris Agreement whoever coordinates all this and then what we have as a final one is construed this is the NDC two degrees so that would be is necessary at the global level to fill the gap that we have seen before between the initial gap between the initial pledge and the pledge which is necessary to reach the two degree temperature and finally means in NDC as you will see uh... you reduce carbon emissions in twenty thirty by ten percent but if you really want to reach two degrees you should already reduce it by at least twenty percent and then for playing this card on efficiency gains or cost savings on emissions we do two polar cases one would be uh... the reference case that countries just implement the domestic carbon system meaning carbon emission price attacks or national emissions trading system but there is no bilateral trading with China or Europe or between these countries that I mentioned and uh... the other polar case would be global and there you know maybe this is a very ambitious assumption we say we have emissions trading all over that's even not the case now in the EU ETS but the EU ETS will be enlarged and uh... in I think in a few years we will have this this emissions trading across all regions and sectors within the EU at least okay and what I present now are I think two or three three figures uh... on results that echo the basic findings and what you see in terms of results are percentage changes in say real consumption of welfare uh... emissions income as compared to a reference situation which is a business as usual in 2030 right meaning what we don't do in this study is to count for the benefits of a mission abatement so typically if you reduce something that you like driving your Ferrari or something like that you will actually lose consumer surplus uh... if you have to produce with higher input costs because you have to pay more for coal, gas and oil then you lose producer surplus and so it's not surprising that in this study is we always talk about cost adjustment cost but you should not forget we all do that because we have this overarching guideline from integrated assessment yeah yeah you should reduce because in the long run there are benefits net benefits uh... from emission abatement so this looks a little bit uh... sizzling or confusing but I've therefore focus on all which would be the emission reduction across all countries if we add up the bladges so this is no simulation run at this point it's simply taking the input data on the BAU applying the bladges and then say how much emission reduction does this country specific bladges how much do they involve at the global level as compared to an international energy outlook business as usual and you see the blue bar is what we have is a bladge under Paris so it would be roughly ten percent you see that the NDC plus this conditional stuff at the moment does not matter a lot it's just from ten to twelve percent but what would matter is to be to decree consistent and then we go up to twenty percent so therefore later on you know the NDC sorry the NDC and NDC plus results are very very close together what you also see is that there are substantial differences in NDCs and uh... however you can interpret them my interpretation is you could take this as a willingness to pay at the point being of these countries so maybe Korea did not think about too much I'm not sure and the Russians had been much smarter but you know it looks like the Korean had initially a very very they have a very very high emission reduction bladges which I gave to to Paris for whatever reason because if I go in my model and I run a simulation for Korea it's not that they can easily they have a relatively steep abatement cost curve so that means that they get relatively high CO2 prices but that would be maybe an indication if they if they say we do it for their voluntary contribution to save the climate and at the same time you see that Russia has very very low bladges uh... very little reduction targets the the brown addition but they add in terms of additional conditional bladges in the green one actually is construed in the way of the scale emission reduction bladges in emission levels so proportionally across regions so we end up to get the two degree consistent overall target so I think this is to be kept in mind ten percent of NDC versus twenty percent in NDC two degrees so two slides so so what you see here is what I call the global welfare effect uh... so this is the aggregated consumption loss because it's negative across all regions in the model and we have different models so uh... you know for each model we get different results and you see there is a considerable spread uh... of all these all these models use similar uh... data to start with they have a relatively logically coherent setting um... so you could ask why are we so different and uh... we can make this cut but the main drivers here are differences in assumptions on price elasticity is you know short run price elasticity long run price elasticity and so on so forth I picked now the model that I run is our university of Oldenburg and what is the key insight and this key insight actually applies to all models independent of how big these bars are so the inside is the following you see that the darker shaded bars are the welfare losses under global and the lighter shaded bars are those under ref remember ref was I basically mission reduction at the national level only about emissions trading and global wars I involve myself in global emissions trading so what you see is that the shaded bars are always smaller than the light bars which means we have this cost savings through we have this cost savings through uh... emissions trading so if we now look at ndc and they say we want to go from ndc to ndc two degree so that would basically mean that we go here from the blue to the green bar if we use ref it's a little bit more maybe here it's tripling but it's more than doubles the cost okay um... so as expected we have to pay more we get more uh... probably a little proportional if it's going to um... adjustment cost but what you also see if you take the if you take the blue bar that is basically now we have ndc uh... achieved uh... in without emissions trading and you compare it with ndc two degrees with a dark green bar then these two numbers are comparable and the ndc two degree green bar means we have a much higher emission reduction target which we achieve through emissions trading so these are numbers in me and you could do viscar blocks uh... they are in the paper but here when you see that we can use the cost savings from carbon trading to pay for for the two degree compatible ndc pledge that was the first message and that's robust across this different models or for the level is somehow different across the model then uh... the second message was about how households affected so different groups then took their national input output data and decomposed it across household in the countries um... they decomposed it across the details income styles uh... with respect to expenditure and income data so you basically have national uh... accounts that that you use and combine it with more aggregate data and then the scenario recall is that that by selling emissions and making money using the scarcity value the shadow price gives you rents then the government in an equally yield way uh... they recycle that in equal shares to households equally means that uh... you know we still maintain all other governmental obligations so i think stanford john's position is more financed for private funds i'm not sure i'm totally paid by public funds so they would not fire me here so they would maintain my job here okay so we go further with the last slide and uh... so that's now viscoblot and here you see what i tried to indicate initially that we now do across all these models uh... we do a visco where we have a the black lines here are the the medians the green triangles are the the other means and then you have a upper and lower quartile and uh... you have some interquartile range one point five to capture outlier but what you see is blue the blue uh... items here capture the expenditure effect so this is the initial reclusive effect of emissions pricing so it's highest with the tourist household is the incident is highest and that's rich are you more or less get the the less you basically are affected by the higher energy prices in relative terms but if we do then the progressive income effect which is the brown or orange bars here and the at least together then we get these line which is the median across all households and there you see clearly second message which is lump sum recycling of carbon rents of sets regressive emissions pricing with that uh... i come i think i come to my conclusions already uh... before i do that let me say if you have been longer in this in this theme of carbon pricing revenue recycling and so on so forth this will not come as a surprise what i say i think what is really surprising is uh... i have heard from a double dividend hypothesis uh... lorenz golder uh... is a colleague of johnny who basically kicked off this theme and the idea is oh if we use if we use carbon revenues and we do recycle it smartly by lowering labor taxes or capital taxes maybe we even do not have to account for any benefits from better environmental quality but they make the tax system more efficient so it's about what you would call the marginal cost of public funds will be equalized for tax reform and that's basically the double dividend so we may have uh... you know an efficiency gain a more efficient uh... uh... taxation system to raise public revenues and that was all hype throughout the nineties end of nineties and two thousand and what was not high it was lump sum because lump sum was that well if you use it lump sum you forgo the possibility to reduce some taxes without very distortionary and that limit economic growth that's still around here so you could think of smarter ways of residing by saying i reduce capital taxes but you know then you would need to have this construed argument of an often uh... economy single we have additional instruments do it with additional welfare gains we can do lump sum recycling through the vector and therefore now the i would say the cat the cat's meow to do uh... lump sum recycling for good reasons we have these two messages uh... which i try to motivate from a get go and uh... i think i put it a little bit as a hypothesis i think uh... the mechanisms are clear but what the mf thirty six studied it is it put some numbers and and basically tested this hypothesis uh... confronted say with real policy and real data and then i have my final thank to you uh... so uh... you turn i think you say modeling for insides not for numbers uh... i would change it a little bit and say backed by numbers because uh... we know a lot of insides from fear from theory but whatever it's big but the fact is big or not and how you basically add up effects as you have seen the income effect and the expenditure fact you need to have a product analysis and therefore i think that the approach of the mf basically the manate modeling forum to basically deal with energy policy issues in a way where you route in sound theory you're reading some theory but you you basically quantify is a very very helpful one hopefully still in the future and that i think you and your staff and you as an audience thanks chris for giving a lecture on environmental economics trade theory the better overview of the mf that i could do results for this very interesting and timely study we have time for a couple of questions uh... thank you first thanks so much for your talk was uh... super super uh... interesting uh... so my question was just about uh... where that the capital for the lump sum recycling is is coming from and whether this requires like a significant expansion in like the actual uh... scope of of of emissions trading systems it seems right now the primary mechanism for uh... for uh... for financing a like emissions reduction and let's say in uh... developing economy is a uh... a firm in a developed economy paying like a direct cash transfer to that firm to reduce their emissions and so doesn't that transfer uh... in some way sort of represent like the the efficiency gain that uh... that the firm has has like has uh... done by by doing the uh... emissions reductions in the cheaper area and so then if that's the case then like where is the the capital where's the saving coming from that will then allow that one summer cycling but the answer directly that okay was uh... yeah so good question uh... so what you refer to is uh... more project based emissions trading which could be a joint implementation and cdm which was on walk ten years ago but now it basically the answer is if you do that of course there is no way that how the government captures the rents and that's very reciting so this was not considered here so the way we think he about is that that there is by law you have an emission budget and then uh... you can trade uh... nationally and then you have an emission price and and you get the money or you have a tax uh... and that allows you in a revenue to do what what we described in your case uh... we've not we could not actually uh... in the way how that the impact goes i think on the expenditure side it will be still regressive because uh... you know one thing that we will see is the savings for food for emissions trading uh... as a you know a car uh... firm does not need to increase maybe it's uh... emission cost too much because they can trade and say you do better and so that's the idea of cdmi so there is a lower cost but the regressive impact will be still there for higher energy prices and so this this cost savings that i talked about will then show up through uh... changes say in the income of labor and capital and uh... so that would be a little bit more along the lines that i take the money and make implicit reductions on maybe the capital cost all the labor cost and i could not say how this goes now but for sure you could not control it like i did here thank you so much uh... i'm curious if you noticed who the conditional nbc's were most dependent on like which countries were people saying oh if they reduce then we'll reduce uh... i uh... i can shorten that because in the paper i don't have a question now right away in the paper uh... uh... we show uh... or we we we have an appendix but you can i don't know where we say how this conditional claims are construed uh... i have to say we don't go now back in my craft i was for conditional so you could see if you could see something for some countries i think korea the case was that the ndc which was original and ndc plus i'm more or less the same because we say we do anyway so much for other countries i would give probably guess africa uh... here you see for africa the uh... the additional ndc is quite a bit but the brown part but the story why this is the case and what is the written text i don't know now but we have it basically uh... sorted out in the paper with appendix i do have a feeling on that question that the u.s. is one of the ones that needed to act for the other ones to go to their conditional more often than not and reminded this study was done during the previous administration here in the u.s. so if you notice the intermediate steps intermediate coalitions below the two uh... the no trading at all and global trading there are europe and china inter-asia trading blocks that the u.s. is not in coalitions probably in this administration you could usually put the u.s. back in i think there's some interest in doing that so maybe one one addition then uh... uh... actually one idea of the emf is also that it allows other people maybe you too uh... not to free ride but to basically use the public good as well and the maybe from the exercise we will prove something like national abatement cost across sectors and regions and this can be downloaded uh... and then you could do in a nutshell similar analysis the very simple partial equilibrium model on with macros and trading so if you have steep curves in the high pledge when you would like to trade with him and so this this one issue that we did uh... that uh... that reese that that resonates a little bit uh... with my one message is take the trade from uh... take the gains from trade and turn it into trade i'm so i was out of the paper saying that uh... turning trade from uh... turning the game from trade into gains from climate and i did was simply what i've but i showed take the cost savings and everybody still find because they don't have to pay more and use not recycle it to the individual countries and uh... and then my colleague this is a game for you said what was you know this is not flying because why should i give why should i give away money and i said well maybe it's because you know everybody wants but they the market determines the efficiency gains from trade is not perceived as fair even if you go in the free trade agreement you may have a much higher gain than him and when you say no no this is not fair uh... i don't do it and although he could benefit you know this is this is the rc uh... theory that's fairness also that may not be so appealing because it's just an argument what is much more interesting is that there is a literature out there you say if you price environmental benefits then uh... you know some countries have an incentive actually to rather to to increase their commitments and so there isn't if somebody is interested in sending an email and i can uh... i can refer to that so what i put as a as a as a proposition that that countries would go ahead and voluntarily sacrifice their cost savings can be put in a rigorous national framework where people do it for their own sake uh... it requires two things that you have environmental benefits willingness to pay that are very different across countries as as we have seen and some fall back position that cannot be zero and in our case for fall back position is that you can't go below the n-d-c-s you had initially but then the interesting thing was what we showed with the with the numbers from e-mail in this strategic game there uh... you basically can uh... increase your pledges above n-d-c you you the the globe does even more than in the simple gains scenario that i pushed here so uh... so it will not be only twenty percent by twenty three or twenty four percent with that said, we probably have to wrap it up here. Thanks again Chris for a great talk and a great wrap up to our series this quarter. Thanks very much.