Carbon Taxing Should Be From Ground to Consumer: Study

For the carbon tax law to be effective and efficient, governments must not only look on imposing them on businesses and manufacturers, particularly mining groups involved in oil, coal, natural gas and other fossil fuels exploration. Governments must also look into taxing a plain consumer to complete the whole carbon supply chain.

Traditionally, the carbon dioxide released by burning fossil fuels is largely attributed to the country that burned the fuels. However, scientists and experts have yet to create and publish a full accounting of emissions that covers the entire supply chain, from where the fuels came from all the way to where by-products made using the fuels were eventually used.

Putting a price on just where the fuel was burned and excluding where it went to and how it was consumed may not be the most effective way to calculate carbon emissions' cost, according to a team of researchers from the Carnegie Institution of Washington. Their work will be posted online at the Proceedings of the National Academy of Sciences.

"Policies seeking to regulate emissions will affect not only the parties burning fuels but also those who extract fuels and consume products. No emissions exist in isolation, and everyone along the supply chain benefits from carbon-based fuels," co-author Steven Davis said.

The scientists based their analysis on the fossil energy resources of coal, oil, natural gas and secondary fuels traded among 58 industrial sectors and 112 countries in 2004. Results showed 51 per cent of carbon dioxide emissions from human activities came from fossil fuels or goods sent across borders to consumers.

They found that fossil resources are extremely concentrated. Majority of these fuels end up exported to developed countries.

The researchers said trying to measure accurately each nation's contribution of carbon dioxide to the Earth's atmosphere is difficult. Carbon is extracted out of the ground as coal, gas, and oil. These fuels are then exported to other countries that in turn burn them to generate the energy needed to create products.

The by-products may still be traded to other countries where they are also consumed.

Researchers said implementing carbon tax mechanisms at the point of extraction could be efficient. Manufacturing of goods may shift from country to another, but fossil fuel resources are geographically fixed.

Controlling fossil fuels extracted in China, the U.S., the Middle East, Russia, Canada, Australia, India and Norway cover 67 per cent of global carbon dioxide emissions. An incentive to encourage the countries to participate would be the danger of losing on revenues from carbon-linked duties levied further down the supply chain.

"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.," Mr Davis said.