Carbon: What price simplicity?

Oil rig at sunset Taxing at source could help bring the Sun down on fossil fuel use faster than carbon trading

Is there a simpler way to put a price on carbon?

The biggest carbon trading project in the world - the EU Emission Trading Scheme (ETS) - has brought small declines in emissions across the bloc, but has few fans.

Opponents of climate regulation hate it because they see it as an expensive white elephant; proponents of tougher regulation hate it because EU member states have secured emission caps high enough that the carbon price (currently around 10 euros per tonne) remains below levels that could drive fundamental change.

Yet this is the model that other regions of the world - Australia, Japan, China, North America - are looking to replicate, and to link with.

The theoretical benefits of carbon trading are clear - reducing emissions as economically as possible, rewarding adaptable companies and punishing the dinosaurs.

But as things have turned out, it's possible to argue that the EU scheme has benefited few other than the growing army of traders who make percentages on all the deals.

It was only recently that Barclays Capital predicted carbon could become the world's biggest commodity market - which seems (to this mind) strange when it's a commodity that is not traded for its use, as are things like copper, cocoa and coal.

One alternative to ETS-style emissions trading that was much discussed a few years ago, personal carbon allowances, has many attractions in principle.

But it makes things more complex rather than less; and anyway, in the political atmosphere post-Copenhagen, the chances of introducing it have receded into the invisible part of the spectrum.

So, the question again: is there a simpler way to do it?

Julia Gillard and Jose Manuel Barroso Julia Gillard's Australia is the latest to commit to carbon trading, following Jose Manuel Barroso's EU

Various figures have suggested at times over the last few years that the best approach would be to tackle carbon at source.

Simply, some kind of levy or tax or whatever would be imposed at the coal mine and at the oil and gas well.

As there are far fewer companies involved in these activities than might be candidates for emissions trading, the burden of administration should be much lower.

Yes, it would make fossil fuels and anything manufactured using them more expensive, as extractors would pass costs up the supply chain.

But ETS-style carbon trading makes things more expensive too; indeed, making fossil fuel use more expensive is the whole economic stick with which CO2 production is supposed to be beaten down.

In the journal Proceedings of the National Academy of Sciences (PNAS) this week, a group of US-based scholars presents an analysis of the global flows of fossil fuels and carbon emissions that sets out the case for well-head pricing more clearly than before.

Some of its headline conclusions might not come as a surprise: Japan and Europe import most of their fossil fuels, the Middle East and Russia are major exporters, China and the US are both big users and fairly large importers.

When it comes to embedded emissions - CO2 produced during the manufacture of goods that are then shipped to another country - China is by far the biggest embedder of emissions, in goods that are principally destined for Western Europe and the US.

World map Interlinked world; the Stanford University researchers map carbon flow (fossil fuel trades and embedded carbon) around the world

By illustrating the sheer scale of these trades, the authors accomplish two things.

One is to show what some commentators view as the perversity of trying to regulate emissions on a country-by country basis, when some are generating those emissions by making goods that are to be used in a different country.

Which government should properly be responsible - the producer, or the consumer?

The second is to show how the politics of a carbon pricing based on well-head levies could be politically attractive to some of the countries that traditionally do most to stymie the UN climate negotiations.

The Gulf states, Russia, and Canada have all placed big political brakes on the UN process in recent years.

But they are also major fossil fuel exporters - and the authors of the PNAS paper cite other evidence showing how big exporters would gain economically from being the ones to implement the levy.

"Regulating the fossil fuels extracted in China, the United States, the Middle East (a region comprised of 13 countries in our analysis), Russia, Canada, Australia, India, and Norway would cover 67% of global CO2 emissions," they write.

It's not quite as simple as that, of course.

You might argue that citizens of the US or Japan or Germany could and perhaps should pay more for their fossil fuel use; but it's pretty tough if people in the poorest countries are penalised too for the little fuel they consume.

So you'd need opt-outs - and you'd also need ways to determine the size of any levy, and where and how the revenues it raises should be spent.

You'd also have to work out whether - and if so, how - to involve things like methane gathered from landfill sites, biofuels and black carbon.

There is another way in which the well-head levy could become politically attractive.

Remember that just before the Copenhagen summit nearly two years ago the rich nations of the world promised that by 2020 they will be funding poorer ones to the tune of $100bn per year?

Although there's been some progress on ways of raising the money, you'd be stretching reality to say there was a firm plan.

Could a levy on fossil fuel production globally that only feeds through to consumers in richer countries be the ticket?

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Richard Black Article written by Richard Black Richard Black Former environment correspondent

Farewell and thanks for reading

This is my last entry for this page - I'm leaving the BBC to work, initially, on ocean conservation issues.

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  • rate this

    Comment number 31.

    Q. Is there a simpler way to do it?
    Tax at source (i.e. the producer) & tax at usage.
    i.e. tax point of production as well as point of implementation.
    Yes, it would make carbon products more expensive, but isn't that the idea? ETS-style carbon trading makes things more expensive too; indeed, making fossil fuel use more expensive is the whole economic stick.

  • Comment number 30.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this

    Comment number 29.

    James Hansen (NASA) has been an advocate of taxing fossil fuels at point of entry and distributing the collected revenue equally among the population. He makes a compelling argument

  • rate this

    Comment number 28.

    The BBC really need to increase the character limit because 400 chars isn't enough to get a good economic point across :P and i mean supply falls short of demand not what i said there XD

  • rate this

    Comment number 27.

    To emit carbon first you have to extract the fossil fuels. It could very well be easier to control emissions at the wellhead rather than the tailpipe. Supply-side policies work - the OPEC cartel have been using quotas to control oil production for decades. Of course their motivation is price manipulation rather than carbon budgets.

  • rate this

    Comment number 26.

    It would be best for the general public if you were to reduce the taxes of buying petrol/diesel at the pumps and instead put the tax on the people extracting the crude oil thus reducing the amount they would be likely to extract, however this may in turn lead to higher prices as demand falls short of supply prices will naturally rise and tax revenue would fall resulting in worse deficits here.

  • rate this

    Comment number 25.

    Any policy action, demand-side (aiming to control the demand for fossil fuels) or supply-side (controlling the supply) will only ever be adopted partially around the world. In the past global fossil fuel use has been driven by demand-side factors (so controlled by demand-side policies). We are now moving in to world dominated by supply-side factors, it make sense to move policy likewise.

  • rate this

    Comment number 24.

    Why are the deluded meteorologists still insisting that global warming is a product of modern living and the burning of carbon fossil fuels? The real reason is the natural cycle of the planet and its macro weather system, that are un-affected by the burning of fossil fuels, The ice age didnt dissapear because we burnt coal, it took millenia to evolve and millenia to dissipate.

  • rate this

    Comment number 23.

    @rossglory #22

    If you had read the book and not the appalling review by Dr. Peter Gleick, you would know Laframboise's book doesn't discuss science, just the IPCC process. You don't need to be a climatologist to understand the process.and the fact that several "experts" were under 25 and weren't even PhD's (nor MSc's!) when they authored the IPCC's Climate Bible

    Read the book Ross

  • rate this

    Comment number 22.

    carbon trading was always doomed, especially as the credits were way under-priced originally. taxing sounds much better, add this to a tobin tax on pointless financial transfers and many govts may just be able to start digging themselves out of the debt crisis.

    re delingpole and laframboise - neither have any relevant qualifications, you may as well read enid blyton.

  • rate this

    Comment number 21.

    Why would it be in the investment firms interests to reduce carbon if it can be traded for profit? This is as big a scam as the housing finance instruments used by the banks. Another profit motivated bubble that is destined to crash. This scheme is about making money and not about the environment. Again, the taxpayers will pay the bill and see no benefit. Sewing buttons on clouds.

  • rate this

    Comment number 20.

    What price? Very high clearly! It seems it is the economic arguments for not tackling AGW that our supposedly-sceptical UK politicians find hardest to resist. However, how will the cost-benefit analysis look once dealing with all these more-frequent natural disasters is taken into account? Also, what about the potential for health and security issues? See:

  • rate this

    Comment number 19.

    Can we link this to yesterday's UK energy summit? ETS has a simple purpose - to increase energy prices to fund decarbonisation. Yet our PM advises consumers to switch suppliers as if the problem was profiteering utilities. This is populist nonsense. Reality, Dave, is that energy is too cheap vs its real cost and prices must rise. Honesty on this could lead to honest help for those who can't pay.

  • rate this

    Comment number 18.

    In the meantime all the woes of the world from droughts, disease, war floods and hurricanes are heaped on a CO2 induced changing climate.

    Changing climate has plagued humanity from time immemorial, and the only successful way to deal with it is by tackling the problems head on not chasing some elaborate CO2 ponzi scheme.

    NGO's and Govt. are wasting valuable time and money on a useless scheme.

  • rate this

    Comment number 17.

    @15 Not to get into a slanging match about mistakes made by whoever, but I just hate conspiracy theorists and by extension, I hate what James Delingpole has to say for himself.

    He twists the whole argument into a sort of socialist conspiracy and while I don't deny some of his ideas hold water (Greenpeace and anti-nuclears are examples of more ideology than fact), JD holds agenda above science.

  • rate this

    Comment number 16.

    This focus on Carbon is detrimental to a sustainable future.

    Taxing carbon and Carbon trading is not even going to effect CO2 emissions, rather it just modifies the cash flow to incorporate more profits for investment banks and more revenue for government.

    Never mind that the link between Climate Change and Carbon Dioxide absolutely unsubstantiated.

  • rate this

    Comment number 15.


    according to Donna Laframboise's book "The Delinquent Teenager Who Was Mistaken for the World's Top Climate Expert", the Climate Bible contains 30% of references to non-peer reviewed work or "grey literature" (5587 out of 18531 references), despite their assurances that the report was 100% peer reviewed

  • rate this

    Comment number 14.

    maybe not gordon

    shale gas off the coast of blackpool could create jobs and be fracking cheap to extract

    agree about the nuclear bit though and "renewables" as long as they are reliable and don't need that nasty fossil fuel back up

  • rate this

    Comment number 13.

    @1 CanadianRockies

    The James Delingpole who himself confessed that he has neither the time, the inclination nor the academic background to study peer reviewed papers on the subject he so readily mocks? Instead he relies on blogger interpretations...and then writes books on it.

    You may have been better off citing Jeremy Clarkson, at least he's honest about being clueless on the subject.

  • rate this

    Comment number 12.

    Carbon trading is an unnecessary side show:
    the climate will continue to change as it has always done;
    the price of fossil fuels will continue to rise as demand exceeds supply and as costs rise to extract them from more difficult places.
    Investment is urgently needed in alternative energy sources (nuclear, renewables, etc.)


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