Monday, January 4, 2010

The Carbon Tax should be a CO2 Emission Fee

Carbon tax is not really a good term, in reality this should be referred to as a CO2 emission fee. There is a need to connect the value of the revenue raised to the purpose for which it is used. If we shift to a CO2 Emission Fee and base the fee on the cost to capture and store the CO2 emissions, then there is a clear benchmark for the price that should be set for the fee.

The correct level to set a carbon tax at is one that reflects the cost of mechanical removal of CO2 from the atmosphere. Only mechanical removal makes any sense because it is can be empirically measured and verified. Many carbon offsets are for projects that would happen anyway or are in locations where it is impossible to verify compliance.

BC has the start of an agency that could capture and store CO2 - the Pacific Carbon Trust. With enough resources, the Pacific Carbon Trust could be a major player early on in co2 capture and storage.

What is the cost of capturing CO2? At this time it seems that the cost is about $65 per tonne to capture and store CO2. This price would indicate that BC should be aiming for a carbon tax of about $70 per tonne to ensure enough taxes are recovered to pay for capture and storage of all the CO2 emitted by fuels in BC. This would mean a carbon tax of close to 17 cents a litre on gasoline.

17 cents a litre is a significant rise from where the tax is now, but adding two more years of phase in to the carbon tax BC could be at 17 cents a litre by 2014. This level of fee could fall over time as the price to capture and store carbon falls. As an industry develops and innovates, it is realistic to expect the price to capture and store CO2 falling to $40 per tonne by 2025.

Linking the fee to the amount of CO2 emissions means the government could set up an opt out system for companies or people that capture and store their own CO2. The Pacific Carbon Trust would monitor the opt outs. Allowing the opt out will encourage even more innovation in CO2 capture and storage and bring down the costs faster.

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