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+--- Thread: What's the best way to model tax credit? (/showthread.php?tid=194)
What's the best way to model tax credit? - qzaus - 05-01-2021
Hello! I am thinking of modeling tax credit policies such as tax credit for electric vehicles within the TIMES model. Should I refer to FLO_SUB or FLO_TAX? The difficulty that I encounter is that the tax credit is per vehicle-based, say depending on the battery, for an EV, the highest tax credit is $7500, while in the dataset, I only have the aggregate numbers for all EVs for the country. Should I change the input data of investment cost of EVs then, to model tax credit in a stylized way? Thank you!
RE: What's the best way to model tax credit? - Antti-L - 06-01-2021
Vehicles are usually modelled by processes where the capacity is the number of vehicles, the input flow(s) represent the energy consumption, and the output flow(s) represent the amount of v-km / p-km / t-km (possibly several flows according to travel distance). FLO_TAX and FLO_SUB can be used for defining a tax / subsidy in proportional to any of the flows of a vehicle process. However, if the credit is related to a tax on vehicle purchase (investment), you can use NCAP_ITAX / NCAP_ISUB for defining an investment tax / subsidy per vehicle. And if it is related to an annual tax on vehicle use, you can use NCAP_FTAX / NCAP_FSUB (annual fixed tax / subsidy per vehicle). I think it is up to the modeller to decide which is the best way to model any such tax credits, but instead of adjusting the vehicle investment costs, I think would rather use NCAP_ITAX / NCAP_ISUB.
RE: What's the best way to model tax credit? - qzaus - 06-01-2021
(06-01-2021, 02:49 AM)Antti-L Wrote: Vehicles are usually modelled by processes where the capacity is the number of vehicles, the input flow(s) represent the energy consumption, and the output flow(s) represent the amount of v-km / p-km / t-km (possibly several flows according to travel distance). FLO_TAX and FLO_SUB can be used for defining a tax / subsidy in proportional to any of the flows of a vehicle process. However, if the credit is related to a tax on vehicle purchase (investment), you can use NCAP_ITAX / NCAP_ISUB for defining an investment tax / subsidy per vehicle. And if it is related to an annual tax on vehicle use, you can use NCAP_FTAX / NCAP_FSUB (annual fixed tax / subsidy per vehicle). I think it is up to the modeller to decide which is the best way to model any such tax credits, but instead of adjusting the vehicle investment costs, I think would rather use NCAP_ITAX / NCAP_ISUB.Thank you Antti, this is really helpful!
RE: What's the best way to model tax credit? - qzaus - 07-01-2021
(06-01-2021, 02:49 AM)Antti-L Wrote: Vehicles are usually modelled by processes where the capacity is the number of vehicles, the input flow(s) represent the energy consumption, and the output flow(s) represent the amount of v-km / p-km / t-km (possibly several flows according to travel distance). FLO_TAX and FLO_SUB can be used for defining a tax / subsidy in proportional to any of the flows of a vehicle process. However, if the credit is related to a tax on vehicle purchase (investment), you can use NCAP_ITAX / NCAP_ISUB for defining an investment tax / subsidy per vehicle. And if it is related to an annual tax on vehicle use, you can use NCAP_FTAX / NCAP_FSUB (annual fixed tax / subsidy per vehicle). I think it is up to the modeller to decide which is the best way to model any such tax credits, but instead of adjusting the vehicle investment costs, I think would rather use NCAP_ITAX / NCAP_ISUB.Hello! I have tried using NCAP_ITAX and the result was the same as the reference case. I was wondering whether it was caused by the way I introduced NCAP_ITAX in the model. Similarly, I imposed a CCS tax credit (which I used the FLO_SUB since it's based on the process) and nothing changed in the result. Will there be anything I need to change to make these tax credit policies correctly incorporated in the model? The first screenshot is for imposing tax credit for EVs, while the second one is for imposing tax credit for CCS techs depending on how much CO2 is sequestrated. One more thing I am not certain about is that for a tax credit, should I use a negative value when I use FLO_TAX and NCAP_ITAX, or I can use FLO_SUB and NCAP_ISUB as positive values. Thank you!
RE: What's the best way to model tax credit? - Antti-L - 08-01-2021
A positive tax works like an additional cost, and a positive subsidy like an additional revenue. It is recommended to use positive values for both taxes and subsidies. So instead of defining a negative tax, it is better to define a positive subsidy. There is basically nothing else needed to make taxes or subsidies correctly incorporated in a model, as long as the currency specified in the parameter(s) is correct (it should either be the only currency in the model, or a currency converted to the target currency in the model). In VEDA, if you leave the currency unspecified, VEDA then assumes the default currency (as defined in SysSettings), which is usually also the target currency. You should see at least the objective value being affected, if any of the processes having taxes/subsidies defined are active in the solution.
RE: What's the best way to model tax credit? - qzaus - 27-01-2021
(08-01-2021, 12:35 AM)Antti-L Wrote: A positive tax works like an additional cost, and a positive subsidy like an additional revenue. It is recommended to use positive values for both taxes and subsidies. So instead of defining a negative tax, it is better to define a positive subsidy. There is basically nothing else needed to make taxes or subsidies correctly incorporated in a model, as long as the currency specified in the parameter(s) is correct (it should either be the only currency in the model, or a currency converted to the target currency in the model). In VEDA, if you leave the currency unspecified, VEDA then assumes the default currency (as defined in SysSettings), which is usually also the target currency. You should see at least the objective value being affected, if any of the processes having taxes/subsidies defined are active in the solution.Thank you, Antti!
RE: What's the best way to model tax credit? - qzaus - 06-03-2021
(06-01-2021, 08:06 AM)qzaus Wrote:(06-01-2021, 02:49 AM)Antti-L Wrote: Vehicles are usually modelled by processes where the capacity is the number of vehicles, the input flow(s) represent the energy consumption, and the output flow(s) represent the amount of v-km / p-km / t-km (possibly several flows according to travel distance). FLO_TAX and FLO_SUB can be used for defining a tax / subsidy in proportional to any of the flows of a vehicle process. However, if the credit is related to a tax on vehicle purchase (investment), you can use NCAP_ITAX / NCAP_ISUB for defining an investment tax / subsidy per vehicle. And if it is related to an annual tax on vehicle use, you can use NCAP_FTAX / NCAP_FSUB (annual fixed tax / subsidy per vehicle). I think it is up to the modeller to decide which is the best way to model any such tax credits, but instead of adjusting the vehicle investment costs, I think would rather use NCAP_ITAX / NCAP_ISUB.If I want to impose tax credit on investment in vehicles, but I only have the aggregate vehicle miles traveled, not the number of vehicles, can I still use NCAP_FTAX / NCAP_FSUB or NCAP_ITAX / NCAP_ISUB? In addition, since a lot of the tax-credit will be proportion-based, what will be a good way to impose a tax-credit like that? Thank you!
RE: What's the best way to model tax credit? - Antti-L - 07-03-2021
Hmm..., do you mean you car capacity is in Gvkm/a? But surely the investment costs must still be based on car prices, no? If so, I guess you must have been converting them from, say USD/car to MUSD/(Gvkm/a)? In that case, you know what those unit conversion factors are, and you would just need to take them into account when applying NCAP_FTAX / NCAP_FSUB or NCAP_ITAX / NCAP_ISUB. I am not sure what you mean by an investment tax-credit being proportion-based, and so find it hard to comment on that.
RE: What's the best way to model tax credit? - qzaus - 08-03-2021
(07-03-2021, 11:45 PM)Antti-L Wrote: Hmm..., do you mean you car capacity is in Gvkm/a? But surely the investment costs must still be based on car prices, no? If so, I guess you must have been converting them from, say USD/car to MUSD/(Gvkm/a)? In that case, you know what those unit conversion factors are, and you would just need to take them into account when applying NCAP_FTAX / NCAP_FSUB or NCAP_ITAX / NCAP_ISUB. I am not sure what you mean by an investment tax-credit being proportion-based, and so find it hard to comment on that.Sorry for the confusion. The conversion makes sense. I will try that. In terms of proportion based tax-credit policies, I am actually referring to tax credit for the installation of solar PVs (sorry again for jumping from transportation sector to residential sector). Since the common type of such tax credit will be percentage of solar PV system. So how should I model that? (should I identify the total investment of solar PV in that year and based on the percentage to calculate the credit, and then use NCAP_FTAX / NCAP_FSUB or NCAP_ITAX / NCAP_ISUB?)
RE: What's the best way to model tax credit? - Antti-L - 08-03-2021
Ok, so the proportion-based tax-credit is related to PV installations. If you mean that those who make PV investments can subtract a certain percentage of the investment cost from their (income?) taxes, it sounds like a form of an investment subsidy to me. If that is more or less correct, could you not define NCAP_ISUB corresponding to the percentage of the investment cost? Of course, you might wish to be able to specify just the percentage value, instead of the subsidy per capacity unit. For that purpose, in VEDA you could perhaps make use of a TFM_MIG table, where you can define NCAP_ISUB by specifying a multiplier for the NCAP_COST values taken from a given source scenario.