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New study: price carbon at the point of fossil fuel extraction

Global carbon emissions are a complicated matter. Currently, officials estimate national fossil fuel-related emissions by what is burned (known as production) within a nation, but this approach underestimates the emissions contributions from countries that extract oil and oil for export. Is there a better way to account for a country’s total climate change footprint?

A new study in the Proceedings of the National Academy of Sciences (PNAS) finds that fossil fuel extraction is highly concentrated: seven countries and one region, the Middle East, account for over two thirds of the world’s resources of oil, gas, and coal that results in global carbon emissions. The authors argue that cutting emissions could be significantly simplified by applying a price on carbon at the point of extraction.

“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 percent of global CO2 emissions,” the authors write.

However this wouldn’t put all of the financial burden on these nations. In a world where fossil fuel emissions are traded—often several times—before being burned, a strategic price on carbon in one place would spread to all the actors involved, from producers to consumers.

“If a consistent and unavoidable price were imposed on CO2 emissions somewhere along the supply chain, then all of the parties along the supply chain would seek to impose that price to generate revenue from taxes collected or permits sold,” the authors explain. “The geographical concentration of carbon-based fuels and relatively small number of parties involved in extracting and refining those fuels suggest that regulation at the wellhead, mine mouth, or refinery might minimize transaction costs as well as opportunities for leakage.”

CITATION: Steven J. Davis, Glen P. Peters, and Ken Caldeira. The supply chain of CO2 emissions. PNAS.

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