Costs and benefits of the Environmental Management Act

77 annum SIRA Consulting, 2004. The ‘fixed cost therefore totals €9 million per annum. Both the cost to the government and the administrative cost are estimated for all Dutch companies participating in the European CO 2 emissions trading system. This includes energy not generated for the manufacturing sector for example energy consumed by households. To estimate the cost to the manufacturing sector only, the figures above should be multiplied by 0.70. 53 This produces a cost of €6.3 million per annum. In addition, the companies incur investment costs: the net annual cost of investing in energy saving measures for the CO 2 emissions trading system. These investments are the active ingredient: the higher they are relative to the overhead cost, the better the system does what it is intended to do. Assuming that entrepreneurs act rationally, at the current price of an emission allowance, about €20 per tonne, they will take a package of measures that costs between virtually nil and €20 per tonne of CO 2 saved. Averaged across all the companies and all the additional measures taken as a result of the emission allowances, the investment cost will lie in the middle between €0 and the amount above which investments are loss- making, i.e. the investment cost is equal to €10 per tonne of CO 2 saved. The manufacturing sector emits about 56 Mtonnes of CO 2 per annum. 54 The calculated decline in demand lies between 0.1 and 1, equal to between 0.06 and 0.6 Mtonnes of CO 2. The annual investment cost on account of CO 2 emissions trading is therefore between €0.6 and €6 million. Added to the fixed cost to the government and the administrative cost to industry together €6.3 million, this brings the total to between €6.9 million and €12.3 million. Since the system is intended to remain in operation for a long period of time, it is necessary to calculate the cost of the notional situation in which the CO 2 emissions trading system had already been in existence for 20 years or so in 2008. The reduction in energy consumption and thus in emissions would then amount to between 2 and 4 price elasticity of 0.1 to 0.2 with a price incentive of 20. With an emission of 56 Mtonnes per annum, this represents a CO 2 reduction of 1 to 2 Mtonnes. If the price 53 The verified emission of all the Dutch participants in the trading system amounted to 80 Mtonnes in 2008. The manufacturing sector accounted for half, power stations for the other half. Of the electricity generated, 40 was consumed by the manufacturing sector. The manufacturing sectors total share of the emission was therefore 70 the direct half plus 40 of the other half of electricity generation. 54 This is the verified emission of all Dutch participants in the emissions trading system, 80 Mtonnes times 0.70.