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NOX

NOX. Brussels Nov 2004 Thomas Sterner Gothenburg. Technicalities of NOx. As distinct from SOx CO 2 , NOx not easy to estimate. Formed by N 2 and O 2 in air. Reaction very nonlinear in T which varies in furnace. Abatement of Nox. Humidity Fuel distribution Fuel Choice SCR, SNCR

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NOX

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  1. NOX Brussels Nov 2004 Thomas Sterner Gothenburg

  2. Technicalities of NOx As distinct from SOx CO2, NOx not easy to estimate. Formed by N2 and O2 in air. Reaction very nonlinear in T which varies in furnace.

  3. Abatement of Nox Humidity Fuel distribution Fuel Choice SCR, SNCR Ammonia EGR Air flow & Temp

  4. The role of measurement • We did many case studies • Engineers talked of ”trying” measures • Could not calculate their effect. • Finetuning was very important • Measurement necessary for plant engineers

  5. Swedish Acid Policy • Highest S, N taxes in the World • Sulfur is >€3/kg S • (This is €1.5 /kg SO2) • France: € 0.3 • US Permits € 0.1

  6. Swedish Acid Policy

  7. Swedish Nox Policy • Very high tax required but not politically feasible. >€4/kg N; • Refunded Emission Payment REP used • Has led to rapid reduction (40%) in Nox emissions which are now very much lower than in other countries

  8. REP • Each company pays a fee of 5 €/kg • Money is refunded to same industries • Don’t get back what you paid! • …but a share in total fees proportional to your share in useful output, (energy) • Much like a tax: Lets explore differences • Tax has 4 effects: Techn./ Price/ Budgetary • (and tax interaction)

  9. Economics of REPs (comp. Tax) • Pqi – ci(qi, ai) – Tei(qi, ai) + σiT[iei(qi, ai)] • q output, c prod cost, a abat. Te charge, σshare and σTeis the refund. • c′a = –Te′a(1 – σi)Abat. Incentives same • P = c′q + Te′q(1 – σi) – T(E/Q)(1 – σi) • Average payment 0  no output effect nor revenue recycling effect. No effect on competitivity, targetting of subsectors easier. Inoptimal because marginal firms are not driven out of business • However Acceptability higher  Fee T higher

  10. PROPERTIES OF REP • Somewhat similar to tax on excess pollution • Or tax-subsidy (tax above ê, subsidy below) • Or to fees that go to earmarked funds • Very useful when output effect not wanted • Small open economy (competitivity issues) • Targetting of only some industries • Compact lobby of powerful polluters

  11. Lower emission coefficients

  12. Reduction efficiency • 40-60% reduction. • Range of emissions is 0,5-1,5 lbs/MWh • The very worst plants reach 2-3 lbs/MWh • US plants range from 4-6 lbs/MWh • Fee Levels S: 5000 €/ton, F 40, I 100, Galicia 30, US 200-500. • France: Earmarked for abatem. E red 6%

  13. Political economy of REP • Splits the industry lobby • Half the firms gain! • Other half pays less than with same tax • Less lobbying means a higher fee rate • In Sweden we would only have passed a tax of maybe 0.5 € and abatement incentives would have been much lower!

  14. REP compared to TEP • Formulae almost identical if permits are allocated in proportion to current output as in US Lead trading scheme. • Auctioned permits like taxes • Grandfathered taxes have output effect (unless there is updating effect). (Is this desirable?) • GF favours incumbents, OA favors entrants • GF bad for proactive behavior. • REP is a P type instrument (price hikes in US!)

  15. Distribution of net fees

  16. Some Conclusions • Monitoring + High Price Signal • Refunding (or free permits). • Sacrifice output and revenue effects but get acceptability. Also dynamic effects on techn. • Catherine Day: Q1 Yes! But models give diff targets diff fee level /separate nat programs ? • Q2 Yes! Maybe special trading program for shipping? Start with simple tax + Info discl.

  17. End – Thank you - Read more .. Articles RFF paper on Nox Econ Letters on Pol econ of Nox Comparison of Nox In Spain, France, US & Sweden. J. of Instit. Comparisons

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