By Joe Petrowski
In my past two columns I discussed various carbon remediation policies. However, it is safe to assume that out of those options a carbon tax of some sort is in our future if we have a Democratic presidential administration and less so, but still a probability, with a Republican administration (depending on how the House and Senate races go). The only major uncertainty is will it be a straight tax or a system of Cap and Trade and allotments, which I personally fear as much or more than a clean tax given the political favoritism and corruption/distortion it will introduce. In either case here are the facts:
- 1 gallon of gasoline produces 18 pounds of CO2. (Ethanol actually adds to CO2 production)
- 1 gallon of diesel produces 23 pounds of CO2.
The current market price of a pound of carbon based on where it is valued/traded (California and Europe) is between $6 to $10 per ton so let’s use $8 for analysis.
Using the basis current transport consumption in the United States we produce 3.5 billion tons of CO2 annually, so at $8 we are talking $26 billion annual cost and realistically as high as $35 billion per year (or 11 cents per gallon). Or, in an economy of 19 million bbl/d of petroleum at 11 cents/gallon it’s almost $35 billion dollars per year.
While the multiplier effect of a $35 billion “tax” is a topic of economic debate, everyone agrees energy costs and especially transport fuels (since they are visible and mostly directly born by consumers who are the largest component of GDP) is close to five. This means that a $35 billion increase in the price of fuel will have a $175 billion annual drag on GDP. While not crippling, it is a 1-2% drag (depending upon the price of raw fuel) on a $16.7 trillion economy at a time where our annual growth rate is trending a full 2 points under long-term performance and less than the rest of the world with exception of Japan and the European Union. In Japan growth is significantly lower due to their age, and to understand Europe’s anemic growth look at their energy policy which we seem in a rush to copy (fools love to crowd together).
What does this mean for the average fuel marketer?
1) If you thought this election was important triple that concern.
2) Natural gas and hydrogen transport will get traction.
3) As I noted last week, there are firms today seeking resourceful and economic ways to go green and put the carbon genie back in the bottle.
Joe Petrowski has had a long career in international commodity trading, energy and retail management and public policy development. In 2005, he was named President and CEO of Gulf Oil LP and elected to the Gulf Oil LP Board of Directors. In October of 2008 he was named CEO of the now combined Gulf Oil and Cumberland Farms whose annual revenues exceed $11 billion and that now operates in 27 states. In September 2013, Petrowski stepped down as CEO of The Cumberland Gulf Group. He is now managing director of Mercantor Partners, a private equity firm investing in convenience and energy distribution and Chairman of the Gulf board.