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Accounting for Non-fuel Uses of Fossil Fuels in an Upstream Carbon Trading System

March 1998 | Tim Hargrave, David Festa, Sam Keller

Part of the Airlie Carbon Trading Papers, this report provides a closer look at the use of fossil energy for non-fuel purposes in the US, and then presents alternative policy options for accounting for this non-fuel use in an upstream trading system. The paper argues for a two-track approach to accounting for non-fuel uses: First, fossil fuel producers would be exempted from holding allowances for carbon embodied in products such as asphalt, because such carbon almost certainly would be sequestered for the long-term. Second, a program should be established to compensate chemical companies and other firms for the cost of carbon allowances that is passed through to them but which relates to carbon that was sequestered in products such as hard plastics. The paper identifies several program options. Such compensation would ensure that petrochemical feedstock costs were not raised unnecessarily and would mitigate any adverse competitiveness impacts on chemical and other companies resulting from carbon regulation.

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