Peter Gallagher

7 Comments

• IanC wrote:

  July 10, 2009 at 12:59 pm

  Gary Hor­lick made the per­ti­nent point that no less than 20 coun­tries con­tribute to the mak­ing of an Apple iPOD, and asks how those coun­tries are going “to cal­cu­late all the car­bon impacts and untan­gle all those per­mits, taxes and rebates.”

  The infor­ma­tion required to pro­duce a ball­park esti­mate prob­a­bly exists. But surely the answer is that the total green­house impacts would be neg­li­gi­ble rel­a­tive to the expen­di­ture incurred or the pro­duc­tive activ­ity gen­er­ated in the pro­duc­tion of iPODs.

  The iPod touch model weighs 115 grams or about 4 ounces, so there are nearly 9000 of these instru­ments to the ton. Thus, at $300 each, a ton of iPODs has a retail value of $2.6 mil­lion. Taxes on CO2 wouldn’t make a per­cep­ti­ble dif­fer­ence to this cost, whether the tax was $10, $100, $1000 or $10,000 per ton of CO2.
• pwg wrote:

  July 10, 2009 at 2:40 pm

  Hi Ian,

  I’m not sure that Hor­lick meant his exam­ple to be taken too lit­er­ally. I believe his point was that intra-trade (export pro­cess­ing) is now a hall­mark of man­u­fac­tures and increas­ingly of com­mod­ity trades too rais­ing over­all trade-intensity of pro­duc­tion (the trade com­ponenetof ‘value added’) to a high level. It’s an inter­link­age that has some adverse con­se­quences, too.

  Given the rent-seeking that the obscure cap-and-trade tax encour­ages, we can pre­dict that inter­ested par­ties will seek to over-cook the carbon-tax ‘bor­der adust­ment’ just as, his­tor­i­cally, the anti-dumping laws have encour­aged inter­ested par­ties to over-cook the adjust­ments for oth­er­wise com­pet­i­tive pric­ing prac­tices when employed by for­eign sell­ers (G. Hor­lick has a huge anti-dumping practice.)

  In markets/products where trade-intensity is high, this rent-seeking will occur in many dif­fer­ent mar­kets along the same value-adding chain (of which the iPod pro­duc­tion chain is an exem­plar). Hor­lick implies—and I agree—the oppor­tu­nity for mis­chief and the risk of added costs is high.

  How high? Let us accept Apple’s esti­ma­tion (http://images.apple.com/environment/resources/pdf/iPod-touch-Environmental-Report.pdf) that the pro­duc­tion + trans­port + recy­cling of an iPod account for 72% of the esti­mated 30kg of car­bon equiv­a­lent ‘life-cycle’ emis­sions. This means that value-adding activ­i­ties account for 21.6 kg of CO2e.

  Let us sup­pose that the value added (includ­ing trans­port) in an iPod touch at retails is 85% of the final price, or $2.21 mil­lion per tonne of iPods (at your esti­mated per-tonne price). We’ll put the price of a tonne of CO2e at the expected (not cur­rent) Euro­pean mar­ket price of Euro 30 per tonne which means that the pro­duc­tion of a tonne of iPods accounts for CO2e emis­sions worth (21.6kg * 9000 iPods) = 194.4 tonnes * 30 Euros = 5,2832 Euro per tonne or $A10,435 per tonne.

  At your esti­mated value at retail of $2.6 mil­lion, this 30 Euro tax rep­re­sents is 0.4% of the retail value, but 0.47% of the value-added. Let’s say, a carbon-tariff of half a per­cent on the value-added.

  Since the origin-for-duty of the iPod is China where there is no car­bon tax, the bor­der adjust­ment in Europe (or Aus­tralia) is equal to, at least, the full tax of half a per­cent of value-added. Horlick’s point is that this tax­a­tion could have taken place at every step in the pro­duc­tion chain, adding to the price of the prod­uct at sev­eral points. This would raise the FOB price of the iPod (while low­er­ing the ad-valorem inci­dence of the car­bon tax).

  But, keep­ing it sim­ple, sup­pose we say that Hor­lick is wrong and that the iPod would face a car­bon tar­iff only at the last point in the pro­duc­tion chain: the Aus­tralian (or Euro­pean) bor­der. That is, the full inci­dence of the tar­iff is 0.5%. This is, in fact, an infi­nite increase in the duty on iPods because, under the Infor­ma­tion Tech­nol­ogy Agree­ment of WTO, the duty on elec­tron­ics and parts is zero.

  A the­o­ret­i­cal infini­tude? Yes. But we also agreed that the mar­gin at retail on our iPod was only 15% (com­pe­ti­tion being what it is). So the new tax is a 3.3% impost on the retailer… who will, of course, mark it up and pass it on to the cus­tomer as a 5% price increase which the retailer (nat­u­rally) “grosses up” for GST to a 5.5% increase.

  Best wishes,

  Peter
• IanC wrote:

  July 10, 2009 at 6:48 pm

  Peter,

  Thanks for respond­ing in such detail to my fig­ur­ing, and espe­cially for draw­ing my atten­tion to Apple
• pwg wrote:

  July 12, 2009 at 12:30 pm

  Ian, I entirely agree.

  The Bank (and Fund) also sup­ply PPP (USD) GDP and GNI esti­mate which puts China at about 11.3% of world out­put in 2008, ranked #2 behind the USA, whose value added is roughly dou­ble that of China’s. But they use sev­eral bases for com­par­i­son as I recall (mar­ket exchange rates, and semi-indexed ‘Atlas’ rates).

  Thanks for point­ing out that the “Penn” error also creeps into the esti­mates used in the VOXEU paper. I’ll have to check that.
• IanC wrote:

  July 12, 2009 at 1:42 pm

  Thanks Peter. The Bank’s Atlas method con­verts GDP in national cur­ren­cies into a com­mon unit using aver­age exchange rates over a 3-year period. This intro­duces a fur­ther con­fu­sion and has noth­ing to com­mend it.

  As between the use of “mar­ket” exchange rate (MER) or PPP weights when mea­sur­ing weights for the world as a whole, essen­tially the Bank uses MERs and shows PPP as a mem­o­ran­dum item, and the Fund does the reverse.

  The IMF reveals its con­fu­sion in the lat­est (April 2009) World Eco­nomic Out­look by con­trast­ing annual changes in per capita world GDP using “PPP weights” and “Mar­ket weights” (Box 1.1, p. 12). In fact, PPP weights are cal­cu­lated entirely from mar­ket prices and val­ues. The dif­fer­ence is that the weights that the Fund calls “mar­ket weights” use exchange rate con­vert­ers to trans­late val­ues in national cur­ren­cies into a com­mon unit. There is no jus­ti­fi­ca­tion for this in rela­tion to trans­ac­tions within national borders.
• lizbettie wrote:

  November 17, 2009 at 4:38 am

  Sorry guys, what is GST? I’ve searched in acronymser­ach and I found out that GST can be Generation-Skipping Trans­fer (Inter­nal Rev­enue Ser­vice), Goods and Ser­vices Tax, Guam Stan­dard Time [+1000], Glutathione-S-Transferase (enzyme). Which one do you mean?
• Criminal Attorney Los Angeles wrote:

  February 12, 2010 at 11:12 pm

  He is the lawyer for the depat­ment of trade
  Crim­i­nal Attor­ney Los Angeles