Capping or taxing fossil fuels at import or production

2009-05-07

in Economics, Law, Politics, Science, The environment

Andrea and friends in red and blue light

Responding to a Nature article mentioned here before, George Monbiot has raised the issue of limiting fossil fuel extraction as a way to gauge the seriousness of governments in fighting climate change. It’s an idea with some virtues, both on climate change and energy security grounds.

Targeting emissions means keeping track of a mind-boggling array of activities: from cement manufacture to vehicle use to landfill gasses. By contrast, targeting fossil fuels would mean dealing with a modest number of firms. Instead of applying a carbon tax or cap-and-trade system to emissions, the alternative would be to use those instruments for fossil fuel imports and production. Doing so would require only that the output from gas fields, oil fields, and coal mines be recorded, along with imports of fuels. In the tax scenario, each fuel would require payments proportional to the greenhouse gasses it will produce when burned. In a cap-and-trade scheme, a set amount of carbon would be permitted to be extracted from the ground or imported, with firms competing for the permits in auctions. This would have the same prioritization effect as a carbon tax on emissions: firms that absolutely needed particular fuels would be willing to bid for permits, while those with alternatives would start to employ them.

Ideally, the scheme would also incorporate land-use change. Those wanting to convert land rich in biomass into something else would need to pay a tax or buy credits equivalent to the gasses being released. Conversely, firms planting forests on land previously poor in biomass could be given grants (under a tax scheme) or permits (under a cap-and-trade scheme).

It might also make political sense to differentiate between imports and domestic production, with the former getting stricter treatment. That would somewhat lessen the opposition of domestic industry, while also accelerating the movement of the state imposing the policy towards energy independence. It would probably be less economically and environmentally effective, but it might be a mechanism for gaining domestic support, while still making it clear that the overall objective is to reduce fossil fuel use to zero. Such a policy could also be justified with reference to higher volatility in fossil fuel prices and availability from abroad, as well as the implicit subsidies to users of imported fossil fuels in the form of military aid and military operations in oil-producing regions. Of course, there is a good chance that it would violate the equal treatment provisions in agreements like NAFTA and the enabling legislation for the WTO.

In the event that carbon capture and storage proves to be a safe, economically viable, and effective technology, it could easily be incorporated into such a system. You would simply make payments or grant permits to firms doing the storing, contingent on them providing whatever maintenance the sites require.

By creating incentives for an unending push towards the non-use of fossil fuels, such policies would make it clear that our ultimate objective must be complete global carbon neutrality. Nothing else is compatible with long-term climatic stability.

[Update: 8 March 2010]. BuryCoal.com is a site dedicated to making the case for leaving coal, along with unconventional oil and gas, underground.

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{ 1 comment… read it below or add one }

R.K. May 7, 2009 at 12:44 pm

I really like today’s photo. The contrasting colours are very attractive.

As for the fossil fuel approach, is this something that has actually been tried anywhere? Are the potential advantages associated large enough to justify using something untested, in place of a more conventional carbon pricing scheme focused on emissions?

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