An in depth study of the CO2 supply chain by scientists argues that enacting carbon pricing mechanisms at the point of extraction could be efficient and avoid the relocation of industries that could result from regulation at the point of combustion.
Most of Australia's contribution to global greenhouse gas emissions comes from the export of fossil fuels such as coal and natural gas. But because we export this, the CO2 emissions are counted against the country where it is combusted, even though much of it may be used in the manufacture of goods imported back into Australia.
A study team from Stanford University in the USA has researched the CO2 supply chain doing a full accounting of emissions taking into consideration from where fuels originate all the way to where products are made using the fuels and to where products are ultimately consumed.
The study was done by Steven J. Davis and Ken Caldeira from the Department of Global Ecology, Carnegie Institution of Science in Washington, and Glen P. Peters from the Center for International Climate and Environmental Research in Oslo, Norway.
Steven Davis said "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,"
Their analysis was done on fossil energy resources of coal, oil, natural gas, and secondary fuels traded among 58 industrial sectors and 112 countries in 2004.
They found that regulating the fossil fuels extracted in China, the US, the Middle East, Russia, Canada, Australia, India, and Norway would cover 67% of global carbon dioxide emissions. The incentive to participate would be the threat of missing out on revenues from carbon-linked tariffs imposed further down the supply chain.
NASA climatologist James Hansen argues for a similar carbon tax to be levied at the pont of extraction for CO2 intensive fossil fuels or port of import, with all revenues to be returned to citizens in a monthly cheque.
The article has been published in PNAS. The PNAS abstract reads:
CO2 emissions from the burning of fossil fuels are conventionally attributed to the country where the emissions are produced (i.e., where the fuels are burned). However, these production-based accounts represent a single point in the value chain of fossil fuels, which may have been extracted elsewhere and may be used to provide goods or services to consumers elsewhere. We present a consistent set of carbon inventories that spans the full supply chain of global CO2 emissions, finding that 10.2 billion tons CO2 or 37% of global emissions are from fossil fuels traded internationally and an additional 6.4 billion tons CO2 or 23% of global emissions are embodied in traded goods. Our results reveal vulnerabilities and benefits related to current patterns of energy use that are relevant to climate and energy policy. In particular, 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 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.
You can view data, country specific graphics or read the PNAS paper from the Supply Chain of CO2 Emissions site at Stanford University.
Here are the pie charts for coal from Australia. Click on the image for a larger version: