Tuesday, July 08, 2008

Here's how a carbon price would add 25 cents a litre to the price of petrol

<--- And here's a molecule of carbon dioxide.

Back in June I wrote (channeling Malcolm Turnbull) that “a $100 carbon price, if fully applied to petrol would add 25 cents a litre to the price.

Malcolm’s exact words were “For every $10 a tonne of carbon price you add about 2.5 cents a litre for the price of petrol. So if you have $100 carbon price, that’s 25 cents a litre on petrol roughly stated.”

Keith Helyar of Watson ACT writes:

A $100 carbon price, if fully applied to petrol (‘‘Transport fuel pact unravels’’, June 25, p5), would add 25c a litre to the price, Peter Martin says. Given the carbon content of petrol is 73 per cent carbon and the specific gravity of petrol is 0.737g per cubic centimetre, then purchase of carbon credits by a fuel company (from a business removing carbon dioxide from the atmosphere, eg, by geosequestration or growing new forests) at $100 per tonne of carbon, would cost 5.38c a litre.

This is for a zero net emissions policy, not a 20, 50 or 80 per cent reduction.

Could Peter Martin please explain how 5.38c a litre increases to 25c?

Does the transport of oil to the refinery, refining of the oil to petrol, and transport of petrol to the service station emit four times as much carbon dioxide to the atmosphere as is eventually emitted when the petrol is used in our cars, or is there a rake-off here?

Here’s the explanation.

Firstly, what Malcolm Turnbull and I meant to say was a $100 "carbon dioxide price" not a $100 "carbon price".

The rest of the explanation is straightforward:

A litre of petrol contains a good deal less than a kilogram of carbon.

But when it is burnt, each carbon atom combines with two oxygen atoms from the air to create more than three times as much carbon dioxide (each oxygen atom is heavier than each carbon atom).

That’s why each litre of petrol produces 2.3 kg of CO2 when burned.

That means that a $100 per tonne carbon dioxide tax should net 23 cents per litre of petrol.

Add on a retail margin, as John Quiggin has done at the University of Queensland, and a $100 per tonne CO2 tax is likely to push up the price of petrol by 25 cents per litre.