NYT provides a useful overview of how carbon fees would make alternative energy sources more competitive with fossil fuels (see multimedia figure for fuel cost changes under different carbon fee scenarios). The article includes an interesting discussion of how a comprehensive carbon tax/cap-and-trade system would take account not just for a fuel's electricity emissions (carbon dioxide per kilowatt hour when the fuel is used), but also it's "closet carbon": the carbon dioxide embedded in production of the fuel itself.
Consider a producer who makes ethanol from pine tree waste versus a producer who burns coal or natural gas to distill corn ethanol. Either production process releases carbon dioxide. In the case of pine trees, however, this is matter left behind after the clear-cutting of a pine plantation for paper or lumber. If not burned to make ethanol such waste would decay and produce methane, also a greenhouse gas. Conversely, if not applied to distill corn ethanol, coal and natural gas stay in the ground and produce no greenhouse gases. Should pine waste ethanol makers get credits for creating new energy from material that would have produced greenhouse gases anyway? In other words, should they be able to deduct potential decay-induced methane releases from their fuel's "closet carbon" content?
Probably, though granting such credits requires careful accounting and oversight. Hopefully such complexities will not deter lawmakers from slapping some price on carbon now and letting EPA hammer out the details.
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