Carbon taxes and fuel prices
This is an appeal to my many numerate and well-informed readers to check my calculations. I’ve been asked to do a quick estimate of the implications of including motor transport (particularly petrol) in a carbon tax/emissions trading scheme. Since it’s easier to model, I’ve decided to look at carbon taxes at rates of $20. $50 and $100 per ton of CO2.
Since a litre of petrol produces 2.3 kg of CO2 when burned, the taxes correspond to 4.6, 11.5 and 23.0 cents/litre, and I’m going to assume that the addition of margins yields final increases of 5, 12.5 and 25 cents/litre.
Given annual consumption of around 30 billion litres (this is petrol + diesel, but I’m going to treat it all as petrol), the revenue generated is $1.5, $3.75 and $7.5 billion, ignoring demand responses (of course, we want demand responses, but I’ll leave this for alter I think).
Coming to a very rough assessment of compensation, if the proceeds were divided equally amoung households in the bottom half of the income distribution (about 5 million of them), the payment would be around $300, $750 and $1500 respectively.
If anyone can see any big holes in my calculations, I’d be very grateful to have them pointed out. More generally, any constructive comments appreciated.