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Rethinking Carbon Taxes: Pricing Pollution At The Point Of Extraction

Coal mine

Generally when we talk about pricing carbon, we are talking about attaching a cost to the burning of a fossil fuel. The tax is often directly tacked onto a consumer purchase (such as buying a tank of gas), or integrated into a carbon trading program for a particular industry (such as the EU emission trading scheme for airlines).

However, a recent report from the Proceedings of the National Academy of Sciences suggests that this form of carbon tax is overly-complex and inefficient.

Instead of attaching a price on pollution when the fossil fuel is burned, the report suggests we attach a price on carbon when the fossil fuel is extracted. They argue that administering a carbon tax early in the supply chain would ensure that the price on pollution would have a bigger reach and would be more effective at reducing global emissions overall.

Plus, administering the tax at the point of extraction would be easier, since fossil fuel mining is concentrated in seven regions around the world: China, the United States, the Middle East, Russia, Canada, Australia, and India. Attaching a carbon tax to extraction in these regions would account for 67% of global CO2 emissions.

According to the report’s co-author Steven Davis of the Carnegie Institution of Washington: “The only way [we can effectively reduce carbon emissions] is if we can come up with anything resembling a consistent, unavoidable price on carbon that applies globally and then the chips will fall as they may.”

By attaching the carbon tax at the point of extraction, we would be ensuring that the price on pollution would trickle down to the end consumer, without dealing with the complexity of applying a carbon tax across several different industries/political jurisdictions.

What do you think of applying a carbon tax at the point of extraction? Do you think it would be more effective than pricing pollution at the point of combustion?
Image CC licensed by Herry Lawford: Coal mine

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