So what Will Carbon Prices Do to Consumers Not as Much as many will have you believe

Well this is an incredibly complex issue.  One that i’ve been modelling over the last year.  I’ve heard so many untruths on this issue that it prompted me to write this short comment.

But to cut a long story short – what will be the effect – not as much as people think.  It all depends on the carbon prices and the marginal polluter setting the price. Lets not get iunto the technoical issues here.    Well it appaears from our modelling that price impacts will be pretty damm small and that benefits from reduced oil consumptions could be enormous by comparison.  What does this mean.  That  the US government/people could gain more from lower oil prices in the longer run than the small price increase on gasioline as a consequence of carbon taxes.

In fact a carbon price of $30/tonne would have a  60- 70 cents on the barrel thats about 0.9%!!!  This would result in a price increase of 12 cents per gallon of gasoline

But  the refineries would be buying the crude at this price and then producing more carbon.  The worst polluter in the US would then have to add about another 6 cents to the price of gasoline.  So we have 18 cents increase in the price of gas.  ie about a 6% increase. 

But hold on.  So what do we think the carbon prices will be.  The EPA in their modelling came out with a number of 17$/te CO2 equivalent.  But under what assumptions was it run.  Not clear but our modelling has a much lower carbon price more like 5-10$/te depending on assumption.  so what will be the impact.  Pretty small.

Now if oil demand falls by 1% because carbon helped us focus on efficiency and costs,  oil prices could fall by $10-20$/bbl (our modelling again).  So that would result in a drop of gasoline prices by95 cents a gallon. 

Similar arguments pertain to the regulated power Industry.  Electrcity prices might go up, but each bill or at least the  quarterly bill will have a rebate.  It was just like my natural gas bill this month from Washinton gas .  $2. I got a $29 rebate !!!

The great thing is the rebate will be essentially  fixed.  The more you save the more you will benefit!

Energy-Redefined

 

Leakage Leakage Everywhere

In a recent report by the FT , an “independent consultant” is suggesting that a carbon tax would result in job losses in the US refining industry and relocations of the refieries to other countries.  Well not so fast.

First of all this assumes that the refining Industry cannot pass on those costs.   Have you noticed how fast gas prices go up when oil prices rise. 

But Second in a study by Energy-Redfined both on refining and on the cement industry we found that you would need a carbon price of 30-90$/te.  Not even the European carbon prices have  reached this high .  So what does this  mean.  Mass relocations are not likley to occur in the next five – ten  or so years

More on this later