Document domestic and overseas carbon flows

changelog.d/fix-478-carbon-flow-docs.changed.md

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+Clarify domestic and overseas carbon flows and household incidence, including imported emissions in the consumption footprint and the chart's 2019 DEFRA fallback intensities.

docs/book/programs/contrib/ubi-center/carbon-tax.ipynb

@@ -7,53 +7,45 @@
    "source": [
     "# Carbon taxes\n",
     "\n",
-    "A carbon tax is a tax levied on the carbon emissions required to produce goods and services. In this way, they are designed to reduce carbon dioxide emissions by increasing prices. This both decreases demand for such goods and services and incentivizes efforts to make them less carbon-intensive. In its simplest form, a carbon tax covers only CO<sub>2</sub> emissions; however, it can also cover other greenhouse gasses, such as methane or nitrous oxide, by calculating their global warming potential relative to CO<sub>2</sub> emissions. PolicyEngine’s carbon tax model is consumption-based - that is, the tax is levied on the UK’s consumption of CO2-intensive goods, rather than the UK’s production of CO2. Table 1 shows the incidence of this carbon tax model:\n",
+    "This page describes PolicyEngine UK's contributed carbon-tax model. It estimates a hypothetical household burden from consumption-related emissions, then allocates that burden between consumers and exposure to the corporate sector. It does not simulate an enacted carbon tax or a border adjustment.\n",
     "\n",
-    "Table 1\n",
+    "## Domestic and overseas flows\n",
     "\n",
+    "Production location and consumption location are different questions. The model estimates the footprint of UK households' consumption without a country-of-production dimension; it does not measure each of the following flows separately.\n",
     "\n",
-    "<table>\n",
-    "  <tr>\n",
-    "   <td>\n",
-    "   </td>\n",
-    "   <td>UK\n",
-    "   </td>\n",
-    "   <td>Non-UK\n",
-    "   </td>\n",
-    "  </tr>\n",
-    "  <tr>\n",
-    "   <td>Owners of production\n",
-    "   </td>\n",
-    "   <td><strong>Reality</strong>: directly taxed by a carbon emissions tax, not indirectly taxed.\n",
-    "<p>\n",
-    "<strong>Model</strong>: Each owner pays <em>s</em>% of x total UK ownership share, in aggregate passes on (1-<em>s</em>)% to consumers.\n",
-    "   </td>\n",
-    "   <td><strong>Reality</strong>: indirectly taxed by a border adjustment, not directly taxed.\n",
-    "<p>\n",
-    "<strong>Model</strong>: assumed non-existent.\n",
-    "   </td>\n",
-    "  </tr>\n",
-    "  <tr>\n",
-    "   <td>Consumers\n",
-    "   </td>\n",
-    "   <td><strong>Reality</strong>: <strong>indirectly</strong> taxed by the carbon emissions tax and <strong>directly</strong> taxed by the border adjustment, depending on sectoral demand elasticities.\n",
-    "<p>\n",
-    "<strong>Model</strong>: Each consumer pays (1 - <em>s</em>)% * total UK consumption share of each consumption sector.\n",
-    "   </td>\n",
-    "   <td><strong>Reality</strong>: not directly or indirectly taxed.\n",
-    "<p>\n",
-    "<strong>Model</strong>: not directly or indirectly taxed.\n",
-    "   </td>\n",
-    "  </tr>\n",
-    "</table>\n",
+    "| Where goods and services are produced | Where they are consumed | What the household model represents |\n",
+    "| --- | --- | --- |\n",
+    "| UK | UK households | Part of the household consumption footprint, without a separate domestic-production component. |\n",
+    "| Outside the UK | UK households | [DEFRA's consumption-based footprint](https://www.gov.uk/government/statistics/uks-carbon-footprint) includes emissions embedded in imports. The model combines these with domestic emissions without a UK/overseas production split or a border-adjustment calculation. |\n",
+    "| UK | Outside the UK | No foreign-consumer population or separate export flow in the carbon-tax calculation. Stored UK production series are not its tax base. |\n",
+    "| Outside the UK | Outside the UK | No separate rest-of-world consumption or production flow in the UK household calculation. |\n",
     "\n",
+    "This distinction also applies to ownership. A household's exposure to corporate taxes does not identify where a company produces goods or where its customers live. The model does not calculate a separate burden for foreign owners or consumers, or separate employer and wage effects.\n",
     "\n",
-    "## Methodology summary\n",
+    "## From consumption to emissions\n",
     "\n",
-    "We model carbon taxes by simulating household net incomes through the microsimulation model. The first step: collecting the Family Resources Survey inputs: data on earnings, benefit receipt and demographics for 20,000 households. Then, we load the Living Costs and Food Survey, which has less granular data on earnings, and benefit receipt, but detailed capture of goods and services produced: we impute these consumption variables to the FRS. We then use the National Carbon Footprint dataset to calculate the intensities of certain categories (e.g. the carbon emissions associated with a pound spent on clothing), and use this to estimate the carbon footprint of each FRS household. After we integrate these carbon footprints to the FRS, we run a full microsimulation to simulate disposable incomes with and without a carbon tax.\n",
+    "[`carbon_consumption`](https://github.com/PolicyEngine/policyengine-uk/blob/main/policyengine_uk/variables/household/consumption/carbon.py) is an annual household estimate in tonnes of CO2. It adds spending in twelve consumption categories, each multiplied by that category's carbon intensity. The intensity is aggregate category emissions divided by aggregate category spending; when that spending is nonpositive, the formula uses the stored fallback intensity.\n",
     "\n",
+    "The [carbon parameters](https://github.com/PolicyEngine/policyengine-uk/tree/main/policyengine_uk/parameters/household/consumption/carbon) also contain production and total-consumption series. The household footprint and carbon-tax formulas do not read those series to construct a territorial inventory or a production-to-consumption trade balance. Their presence does not establish separate coverage of all four flows above.\n",
     "\n",
-    "### Appendix: Carbon intensities"
+    "Consumption inputs, intensities and survey weights determine the resulting footprint. A sum over the simulated households is not by itself a validated UK national emissions total; that interpretation also requires suitable data and weights. This page describes the calculation, without validating a particular dataset's imputation or source-country coverage.\n",
+    "\n",
+    "## How the burden is allocated\n",
+    "\n",
+    "For a household with footprint `E_h`, the [`carbon_tax` formula](https://github.com/PolicyEngine/policyengine-uk/blob/main/policyengine_uk/variables/contrib/ubi_center/carbon_tax.py) is:\n",
+    "\n",
+    "```text\n",
+    "E_total = sum(household_weight_h * E_h)\n",
+    "carbon_tax_h = c * r * E_h + (1 - c) * r * E_total * shareholding_h\n",
+    "```\n",
+    "\n",
+    "Here `r` is the hypothetical price per tonne and `c` is the consumer-incidence fraction, both set by the [carbon-tax parameters](https://github.com/PolicyEngine/policyengine-uk/blob/main/policyengine_uk/parameters/gov/contrib/ubi_center/carbon_tax.yaml). The first term allocates the consumer share by the household's footprint. The second allocates the remaining burden using [`shareholding`](https://github.com/PolicyEngine/policyengine-uk/blob/main/policyengine_uk/variables/household/wealth/shareholding.py), the household's modelled corporate-sector wealth exposure. With a dataset and nonzero corporate wealth, that exposure is normalised by weighted household corporate wealth; otherwise the formula uses the national-balance-sheet denominator.\n",
+    "\n",
+    "This is an allocation assumption, not a calculation of sector-specific demand elasticities, international ownership or the legal incidence of an import tax. Changing the incidence fraction changes who bears the modelled burden, without adding a country-of-production breakdown.\n",
+    "\n",
+    "### Appendix: 2019 DEFRA fallback intensities\n",
+    "\n",
+    "The chart below uses the 2019 DEFRA fallback intensities stored in the [carbon-intensity parameters](https://github.com/PolicyEngine/policyengine-uk/blob/main/policyengine_uk/parameters/household/consumption/carbon/intensity.yaml). Its code cell fixes these twelve values and does not query the current carbon parameters. The chart is not a new estimate or validation of domestic and overseas emissions.\n"
    ]
   },
   {

myst.yml

@@ -37,6 +37,7 @@ project:
       - pattern: docs/book/policy/*.md
     - title: Programmes
       children:
+      - file: docs/book/programs/contrib/ubi-center/carbon-tax.ipynb
       - pattern: docs/book/programs/gov/*/*.md
 site:
   options: