Managing the Unconventional Oil and Gas Bonanza (chapter in “Global Ten: Challenges and Opportunities for the President in 2013”)

Carnegie Endowment for International Peace / by David Burwell, Deborah Gordon (beginning on page 75)

[Page 2 of this website describing chapter] …unconventional oils and gases have widely varying carbon footprints due to their different carbon contents, energy-intensive extraction methods, and extensive processing requirements. For instance, extra-heavy oils contain carbon residues that form coal-like products that when combusted emit 40 percent more carbon dioxide than gasoline and 10 percent more than coal. Their development has effects outside of U.S. borders as well, as co-products like petroleum coke (also referred to as pet coke) are exported to Asia, often with disastrous environmental consequences.

The only alternative is a carbon tax. Now, more than ever, this tax policy is needed to regulate the development of these resources. By adding a surcharge on the carbon created in producing, processing, transporting, and burning different types of oil and gas, priorities can be set for which fossil fuels to extract and which to keep safely stored underground—the more carbon intensive the fossil fuel, the higher the price of development. Carbon pricing also helps manage emissions leakage—through pet coke production, hydrogen addition, methane venting, flaring, or otherwise—from oil and gas. A carbon tax must be implemented before massive infrastructure investments and the unbridled development of these resources reach a point of no return.

Today’s oil and gas markets do not efficiently allocate these energy resources because the social costs of fossil fuel development are presently overlooked. Carbon pricing protects public health and welfare, bolsters national security, mitigates ecological risks, reduces waste throughout the value chain, encourages more efficient fuel use, advances commercialization of renewable fuels, assigns the most carbon-intensive fuels to noncombustion uses, and rewards carbon-efficient, sustainable land development.

A simple yet sophisticated pricing structure must be carefully crafted to assure advancement of these important national goals. The United States cannot afford to sacrifice the long-term objectives of sustainable development and environmental security for short-term economic gain. Getting carbon prices right can advance both objectives…


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