What's the best way to model tax credit?
#1
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!
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#2
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.
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#3
(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!
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#4
(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!


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#5
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.
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