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How to make lower oil prices work for the environment

How to make lower oil prices work for the environment | 01/12/14
by John Brian Shannon John Brian Shannon

Oil prices crashing in 2014. Image courtesy of Newstalk770.com

Oil prices crash in 2014. Image courtesy of Newstalk770.com

As oil prices continue their dramatic slide, the U.S. and Europe could use a bit of progressive energy policy to put some political pressure on North Korea, Iran and Russia, while adding some momentum to the adoption of renewable energy.

All that the U.S., Canada and Europe needs to do to punish North Korea, Iran and Russia over recent political disagreements would be to ratify a unified carbon tax of (for example) $20.00 per tonne of CO2 emitted — which rate is about half of the externality cost of CO2 emissions.

A carbon tax would cost the worst polluters like coal (heavily) medium polluters like oil (somewhat) and natural gas the lowest fossil polluter (much less)

Especially over the long term this kind of taxation would depress oil demand and make other energy somewhat more attractive by comparison, thereby lowering coal and oil production and profits for Iran and Russia.

I’m certainly not proposing a level of subsidies equal to that enjoyed by the fossil fuel industry which will top $600 billion dollars globally for 2014

I’m merely proposing that the (tiny, $20/tonne) carbon tax revenue be used to fund renewable energy projects where they make economic sense, for (reactive) carbon damage mitigation and proactive energy efficiency programs.

In the grand scheme of things, the additional cost of approximately $1.00 per barrel to the price of oil via a ($20 per tonne of CO2) carbon tax is inconsequential when the per barrel price has fallen by $40.00 per barrel in the past 12 months.

Crude oil price from Dec 5 2013, through Dec 5, 2014

Crude oil price from Dec 5 2013 — Dec 5, 2014. Image courtesy of www.infomine.com

The cost of a $20 per tonne of CO2 carbon tax at the gas pump?

The price of fuel at the pumps would increase by approximately $.03 per US gallon. The accumulated carbon tax revenue stream could be used to fund ongoing zero-carbon energy solutions and energy efficiency programs.

By slightly increasing the cost of fossil fuels via carbon taxation as the per barrel cost of oil continues to fall, natural gas with it’s lower carbon footprint would surge, renewable energy adoption would increase, and the West would show real progress and concomitantly lead the world towards a cleaner environment.

To summarize:

By initiating a small $20.00/tonne carbon tax we would reap the following benefits:

  1. Lower oil revenues for Iran and Russia/increased energy costs for North Korea.
  2. Relative to oil and coal, an increased demand for (the infinitely cleaner) natural gas.
  3. Gives both non-polluting renewable energy and energy efficiency a mild subsidy boost.
  4. Cleaner air and year-on-year lowered health care costs.
  5. Lowered acid rain damage to concrete infrastructure — ‘concrete spalling’ and a lower level of agricultural crops damage.
  6. Preserve rising domestic electric vehicle and hybrid/electric vehicle sales and the related jobs.
  7. Adds plenty of energy jobs to the economy via ongoing year-on-year (carbon tax funded) renewable energy manufacturing and installations.

And I get that Russia and Iran would eventually ramp-up their natural gas production to counter the lower oil price. But it would be very inconvenient for their economy over the next 24 months.

We all breathe the same air, and reducing our high-carbon-fuel use benefits us all (natural gas, instead of oil — renewables, instead of coal) no matter where it is being burned on the planet.

When we use energy policy as a judicious diplomatic lever, that too, can be a benefit.

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