Pricing carbon from ground to consumer -US study

Mon Oct 17, 2011 8:48pm BST

* Most efficient to tax carbon at point of extraction

* Middle East and seven countries emit 67 pct of CO2

By Deborah Zabarenko, Environment Correspondent

WASHINGTON, Oct 17 (Reuters) - To measure a country's greenhouse emissions from fossil fuels, it makes sense to consider the whole carbon supply chain, from oil well or coal mine to a consumer's shelf, scientists reported on Monday.

Currently, putting a price on climate-warming carbon dioxide generated by oil, coal, natural gas and other fossil fuels typically takes place where the fuel is burned.

However, this may not be the most effective way to calculate carbon emissions' cost, the researchers wrote in the journal Proceedings of the National Academy of Sciences.

Carbon dioxide generated by human activities such as coal-fired power plants and factories and petroleum-powered vehicles contributes to the heat-trapping greenhouse effect that spurs climate change. To counter this effect, some policy makers advocate putting a price on carbon emissions to curb consumption.

Without advocating any method of pricing carbon, the scientists suggest that as a practical matter, it could be most efficient to administer any so-called "carbon tax" at the point of extraction.

"We've moved beyond trying to place blame, because that's just an argument that will never be won," said co-author Steven Davis of the Carnegie Institution of Washington. "The only way it's ever going to get sorted out is if we can come up with anything resembling a consistent, unavoidable price on carbon that applies globally and then the chips will fall as they may."

The scientists analyzed fossil fuel extraction, combustion and consumption in 112 countries and 58 industry sectors. They learned that 51 percent of all carbon dioxide emissions from human activities stemmed from fossil fuels or goods that were sent across borders to get to consumers.

INCENTIVE FOR BIG DRILLERS AND MINERS

They found that 67 percent of global carbon dioxide emissions would be covered if regulation of fossil fuels was done at the point of extraction in China, the United States, the Middle East, Russia, Canada, Australia and India.

Those countries that did not participate would miss out on revenue from carbon-linked tariffs down the supply chain, the authors discovered.

To give an incentive to big fossil fuel extractors, like Saudi Arabia, to put a tax on oil aimed at reducing demand for oil, it would have to be clear that a tax would have to be imposed somewhere along the line, Davis said by telephone from Washington state.

"If that oil was going to be taxed when it was burned somewhere else, like the United States, then the Saudi Arabians would prefer to actually administer the tax and collect revenue that they could use at home rather than allow the revenue to be collected in the U.S.," Davis said.

Putting a carbon tax at the point of extraction would be efficient since there are far fewer coal mines and oil wells than there are factories and power plants, and this could avoid the relocation of industries that might occur if regulation occurred where the fuel was burned, the authors wrote.

They also found that most of the world's exported fossil fuel ends up in developed countries, which also import a lot of goods dependent on fossil fuel. China is the exception to this trend.

More information and graphics, including a country-by-country accounting of emissions from extraction, production and consumption, are online at supplychainCO2.stanford.edu/ .

(Additional reporting by Christopher S. Buckley in Beijing; Editing by Cynthia Osterman)

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