TABLO implementation

The modelling expresses the specific and ad valorem equivalent tax rates in ordinary change form to avoid problems when the initial value is zero (dT and dV in the notation above).

The price to which the emissions tax is indexed (the variable I in section 8.3.1) is denoted by the coefficient ENERINDEX in the TABLO implementation. It the ratio of the level of prices in the current simulation year (say, 2011) to those in the year in which the tax is specified (say, 2006 in this example) and is included in the model to preserve homogeneity in prices. The coefficient is updated using the percentage change in the national consumer price index (natp3tot).

The core of VURM5 supplies the values for P × Q, which are:

(1) for goods in the set FUEL, the basic value of use (the coefficient V1BAS); and

(2) for the element “Activity”, the value of output for industries (the coefficient COSTS), or the total value of consumption for households (the coefficient V3TOT).

The model core also supplies the values for p and q. Emissions tax rates

It is assumed that emission taxes in VURM5 are levied by the ‘Federal’ (Australian) Government. Change in the specific tax rate on emissions (E_d_gastax)

Equation E_d_gastax determines the change in the specific tax rate on emissions. The change in the specific tax rate (d_gastax) has the dimensions:

 source of emissions (the setFUELX);  emitting sector (the setFUELUSER); and  region (the setREGDST).

As dimensioned in the model database, this gives rise to 2 600 different specific tax rates on emissions. This dimensionality allows considerable flexibility in tailoring emission abatement policies to particular source of emissions, emitting sectors and/or regions.

Equation E_d_gastax enables a single shock to the variable d_gastaxdom to be applied across all endogenous components of d_gastax. The equation can be turned on by making the shift term d_fgastax exogenous and setting it to zero, or turned off by making it endogenous.

Equation E_d_gastax also allows the level of the tax rates to be equalised across each category of FUELUSER by setting the relevant element of d_CrunchUSR to one. This sets the tax rate in each industry to the tax rate in the industry specified in the TABLO code, which is arbitrarily set to the printing industry. The choice of target industry can be changed by changing the element specified in the TABLO code and re-compiling the model.

The specific tax rate on emissions in the simulation year feeds, through the intermediate variables d_t1Fgas and d_t3Fgas, into the equations in the model core that specify the percentage point changes in the ad valorem tax rate on production and on household consumption (d_t1F and d_t3F, respectively).

The variable d_gastax updates the coefficient ETAXRATE, which denotes the level of the specific tax rate and corresponds to the variable T in the conceptual model outlined above.

Coefficient (all,f,FUELX)(all,u,FUELUSER)(all,q,REGDST)

ETAXRATE(f,u,q) # Specific tax rate on CO2-e emissions (A$000 per tonne) #;

Read ETAXRATE from file GDATA header "ETXR";

Update (change)(all,f,FUELX)(all,u,FUELUSER)(all,q,REGDST)

ETAXRATE(f,u,q) = d_gastax(f,u,q);

Equation E_d_gastax

# Change in the specific tax rate on CO2-e emissions (A$000 per tonne) #

(all,f,FUELX)(all,u,FUELUSER)(all,q,REGDST)

d_gastax(f,u,q) = d_gastaxdom +

(ETAXRATE@1(f,"Printing",q) - ETAXRATE@1(f,u,q))*d_CrunchUSR(u) + d_fgastax(f,u,q);

Percentage point change in the ad valorem equivalent tax rate on fuels used in production (E_d_t1Fgas to E_p0a_s)

Equation E_d_t1Fgas converts the ordinary change in the specific tax rate (d_gastax) into the percentage point change in the ad valorem equivalent tax rate on production (d_t1Fgas). This conversion is needed to feed the tax on emissions into the existing taxes in the model core. This formulation of the equation is based on equation (E8.13) above.

The equation applies to the use of fossil fuels (designated by the set FUEL) in production. The percentage point change in the ad valorem equivalent tax rate is expressed in terms of the basic values of those fuels used in production.

Equation E_p0a_s maps the percentage change in the domestic basic price of each commodity paid by industry users (p0a) from source region to destination region and industry (p0a_s). It does so using purchasers’ price values as weights (the coefficient V1PURA). This equation supports equation E_d_t1Fgas.

Equation E_d_t1Fgas

# Ad Valorem (%) equivalent of specific fuel tax rate, user 1 #

(all,c,FUEL)(all,i,IND)(all,q,REGDST)

d_t1Fgas(c,i,q) = EIoverPQ(c,i,q)*{

ETAXRATE(c,i,q)*[xgas(c,i,q) + gastaxindex - p0a_s(c,i,q) - x1o(c,i,q)] + 100*d_gastax(c,i,q)};

Equation E_p0a_s # Basic price of good c used by industry i in region q#

(all,c,COM)(all,i,IND)(all,q,REGDST)

ID01[sum{s,ALLSRC, V1PURA(c,s,i,q)}]*p0a_s(c,i,q) = sum{s,ALLSRC, V1PURA(c,s,i,q)*p0a(c,s)};

8.3.2.1.1 Percentage point change in the ad valorem equivalent tax rate on fuels used for consumption (E_d_t3Fgas to p3a_s)

Equation E_d_t3Fgas, which is analogous to equation E_d_t1Fgas, converts the ordinary change in the specific tax rate (d_gastax) into the percentage point change in the ad valorem equivalent tax rate on household consumption (d_t3Fgas). This conversion is needed to feed the tax on emissions

into the existing taxes in the model core. This formulation of the equation is based on equation (E8.13) above.

The equation applies to the “residential” component of the set FUELUSER. The percentage point change in the ad valorem equivalent tax rate is expressed in terms of the basic values of those fuels used in production.

Equation E_p3a_s maps the percentage change in the domestic basic price of each commodity paid by household users (p3a) from source region to destination region (p3a_s). It does so using purchasers’ price values as weights (the coefficient V3PURA). This equation supports equation E_d_t3Fgas.

Equation E_d_t3Fgas

# Ad Valorem (%) equivalent of specific fuel tax rate user 3 #

(all,c,FUEL)(all,q,REGDST)

d_t3Fgas(c,q) = EIoverPQ(c,"Residential",q)*{

ETAXRATE(c,"Residential",q)*

[xgas(c,"Residential",q) + gastaxindex - p3a_s(c,q) - x3o(c,q)] + 100*d_gastax(c,"Residential",q)};

Equation E_p3a_s # Basic price of good c used by households in region q #

(all,c,COM)(all,q,REGDST)

ID01[sum{s,ALLSRC, V3PURA(c,s,q)}]*p3a_s(c,q) = sum{s,ALLSRC, V3PURA(c,s,q)*p0a(c,s)};

Percentage point change in the ad valorem equivalent tax rates on non-combustion

emissions (E_d_indtax to E_d_tFgascs)

Two equations map the specific taxes on non-combustion emissions into the existing taxes in the model core.

 Equation E_d_indtax converts the ordinary change in the specific tax rate on non- combustion emissions (d_gastax(“Activity”,i,q)) by industry emitters (the set IND) into the percentage point change in the ad valorem equivalent tax rate for each regional industry. The structure of the equations is similar to that of E_d_t1Fgas, but where the percentage change in the ad valorem equivalent tax base is determined by the basic value of industry output, excluding any additional returns from export sales (p1cost and x1tot).

 Equation E_d_tFgascs converts the percentage point change in the ad valorem equivalent tax rate by regional industry (d_indtax) to a commodity and source-based tax (d_tFgascs). This ensures that the tax on commodity c is equivalent to the value of the tax on the output of industry i. This mapping is needed because all of the indirect taxes in the model core are taxes on the flows of commodities.

On the right-hand side of E_d_tFgascs, ISDOM(s) is a dummy coefficient that is equals to one when s is a domestic source, and zero otherwise. The mapping is based on the share of commodity c produced by industry i in the region corresponding to the value of the index s. The operator SOURCE2DEST(s) maps the value by domestic source region to destination region. It does not include the value of foreign imports, which is also an element of the set denoting all source regions

(ALLSRC). The percentage point change in the sales tax rate on imported commodities (d_tFgascs) is, consequently, zero.

Equation E_d_indtax # %-Point change in the ad valorem tax rate on all sales by industry i & q #;

(all,i,IND)(all,q,REGDST)

d_indtax(i,q) = EIoverPZ(i,q)*{ETAXRATE("Activity",i,q)*

[xgas("Activity",i,q) + gastaxindex - p1cost(i,q) - x1tot(i,q)] + 100*d_gastax("Activity",i,q)};

Coefficient (all,s,ALLSRC)

ISDOM(s) # = 1 If source of input is domestic, =0 otherwise #;

Formula (all,s,REGSRC)

ISDOM(s) = 1;

ISDOM("imp") = 0;

Equation E_d_tFgascs

# %-Point change in sales tax rate, by commodity & source region #

(all,c,COM)(all,s,ALLSRC)

(TINY + MAKE_I(c,SOURCE2DEST(s)))*d_tFgascs(c,s) =

ISDOM(s)*sum{i,IND, MAKE(c,i,SOURCE2DEST(s))*d_indtax(i,SOURCE2DEST(s))}; Emissions tax revenue

Change in federal government emissions tax revenue by region of collection (E_d_etaxrev) Equation E_d_etaxrev calculates the change in federal government revenue from the taxation of emissions by source region. It is based the right-hand side of equation (E8.5), summed over the set of sources of greenhouse gases (FUELX) and the set of emitters that give rise to greenhouse gas emissions (FUELUSER). For an emissions trading scheme, the tax revenue collected represents the value of domestic permits issued.

The equivalent of variable d_etaxrev is used to update the coefficient ETAX, which denotes the level of revenue raised by the federal government from the taxation of greenhouse gas emissions.

Coefficient (all,f,FUELX)(all,u,FUELUSER)(all,q,REGDST)

ETAX(f,u,q) # Revenue from the emissions tax (A$ million) #;

Read ETAX from file GDATA header "ETAX";

Update (change)(all,f,FUELX)(all,u,FUELUSER)(all,q,REGDST)

ETAX(f,u,q)= QGAS(f,u,q)*ENERINDEX*d_gastax(f,u,q) +

ETAX(f,u,q)/100*[xgas(f,u,q) + gastaxindex];

Equation E_d_etaxrev

# Change in revenue from the emissions tax by region (A$ million)#

(all,q,REGDST)

d_etaxrev(q) = sum{f,FUELX,sum {u,FUELUSER, QGAS(f,u,q)*ENERINDEX*d_gastax(f,u,q) +

8.3.2.1.2 Change in total federal government emissions tax revenue (E_d_natetaxrev)

Equation E_d_natetaxrev calculates the total change in revenue from the taxation of greenhouse gas emissions. It is calculated as the sum of the changes in tax revenue by region of collection.

Equation E_d_natetaxrev

# Change in total revenue from the emissions tax (A$ million) # d_natetaxrev = sum{q,REGDST, d_etaxrev(q)};

8.4

Modelling Australian involvement in an international emissions