THE CENTRAL ROLE OF CARBON PRICES - The Climate Casino - page 229

Figure 33 shows the trajectory of carbon prices over the next half
century under the idealized situation of universal participation and
effi cient implementation. 6 It would start at about $25 per ton in 2015.
The required carbon price rises rapidly over time, at around 5 percent per
year in real or infl ation-corrected terms, reaching $53 per ton of CO 2 in
2030 and $93 per ton of CO 2 in 2040. The sharp price rise is needed to
choke off the rapid projected growth in CO 2 emissions that is assumed
in most economic models.
The fi gure also shows the range of estimates of different models.
You can see the substantial uncertainty across different models about
just what carbon price would be required to contain global warming at
the 2 1 ⁄ 2 °C limit. The large range refl ects intrinsic uncertainties about
future economic growth, energy technologies, and climate models.

IMPACT OF CARBON PRICES ON ENERGY PRICES

To understand how a carbon tax would affect daily life, Table 8
shows the impact of a $25 per ton carbon price on representative energy
products at the wholesale level. 7 The increases are determined by the CO 2
content per dollar of cost. Coal is the most heavily affected, while petro-
leum shows the smallest impact because it has high value per unit of
CO 2 emissions.

Table 8. Impact of a $25 per ton carbon tax on wholesale energy prices. This
table shows the impact on the wholesale prices of major energy products. The
effect on coal will be substantial because it is so carbon intensive. Petroleum has
the smallest increase because it has high value per unit of CO 2 emissions.

Without carbon
price

With carbon
price

Change
(%)

Item Unit

Prices (2005 $):
Petroleum

$ per million btu 17.2 19.1 11

Coal $ per million btu 1.8 4.1 134

Natural gas $ per million btu 4.5 5.8 30

Electricity
industria )

cents per kWh 6.9 9.0 31