Alternative to a carbon tax: carbon deposit


in Economics, Politics, Psychology, The environment

It just occurred to me that there might be a way to both (a) spur the development of effective carbon capture and storage (CCS) technology and (b) circumvent the apparent political impossibility of creating a carbon price. It involves treating tonnes of greenhouse gas pollution like soda cans.

Instead of charging people a fee based on their tonnes of emissions, as an incentive to use less, you could require everyone to pay a disposal fee for the carbon up front when they buy oil, gas, or coal. It’s possible to separate carbon dioxide (CO2) from air and to bury it underground. The cost of doing so could be built into the disposal fee. For instance, if it cost $600 to bury a tonne of carbon, there could be a $600 deposit required on that quantity of fossil fuel. If you burn it, capture the carbon, and sequester it then the deposit gets returned to you. If you just vent the CO2 into the air, then you lose the deposit. The effect is similar to a carbon tax, with an exemption for firms that demonstrably nullify their emissions. (Of course all the issues with safety and verification and CCS remain.)

A $600 carbon price would have a large and immediate effect on an economy like Canada’s, so this probably isn’t politically possible either. (Of course, it would be possible to start lower and scale up, giving people more time to adjust.) There may well be all sorts of other problems with it also, but I thought it was an idea worth contemplating.

{ 4 comments… read them below or add one }

Milan May 19, 2012 at 12:02 am

It would make sense to charge some sort of deposit on biofuels too, to reflect the fossil fuel inputs to their production (at least in places that do not yet have a carbon pricing system) as well as any unsustainable harvesting practices (like clearing carbon-laden rainforest for biofuel-producing palm plantations).

Milan May 19, 2012 at 12:10 am

According to Wolfram Alpha, burning 1L of petroleum produces about 4.5 kilograms of CO2. That means producing 1000 kg of CO2 would require burning a bit more than 220 litres of gasoline.

With a $600 / tonne carbon deposit on gasoline, the price would go up by about $2.73 per litre. Of course, that seems extremely high. What it reflects, however, is the cost of cleaning up the mess your car is creating. (Not even the whole mess, mind you! Not the NOx and SOx and pedestrian deaths and particulate matter and noise – just the climate change part of the mess)

. May 19, 2012 at 12:16 am
. January 28, 2020 at 1:55 pm

Your analysis of carbon capture and storage was welcome, if somewhat pessimistic. We recently analysed ten recognised carbon-utilisation pathways and found that, at the top end, around 10bn tonnes of carbon dioxide a year could be used by 2050, a sizeable chunk of current emissions. Some of these pathways, notably the production of urea and polymers, could already be profitable. Others would require a carbon price of less than $100 per tonne.

As you implied, a carbon tax could speed their deployment. A simpler alternative is mandatory sequestration: requiring fossil-fuel companies to capture and safely dispose of a fraction of the carbon dioxide that they extract or import. Indeed, Britain had such a bill on the table in 2015. Perhaps it is time to bring it back.

cameron hepburn
Smith School of Enterprise and Environment
University of Oxford

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