Coal, oil, and gas are primarily used as fuels (e.g. gasoline, natural gas, kerosene, power plant coal, jet fuel), which release carbon dioxide (CO₂) when burned, the main greenhouse gas emission of concern for Carbon Fee and Dividend.

What about coal, oil, and gas that isn’t burned?

However, the chemical versatility of carbon also makes these raw materials a valuable feedstock. For example, about 15% of oil and a small (less than 5%) but growing amount of natural gas is used as a feedstock for other non-fuel uses (e.g. polymers, chemical feedstocks, asphalts, waxes, lubricants). Some of these materials may likely be incinerated after use, or break down naturally, either way ultimately resulting in CO₂ emissions (e.g. isopropyl “rubbing” alcohol which evaporates and breaks down into CO₂ after use, motor oils which are often incinerated after use). However, others are chemically stable and typically recycled or landfilled, meaning they won’t degrade into CO₂ and will effectively “sequester” carbon in a solid form (e.g. plastic, solid components in asphalt).

Feedstock Rebate

Since Carbon Fee and Dividend is exclusively intended to reduce greenhouse gas emissions, it is to be implemented to ensure the carbon fee IS applied to all carbon that results in CO₂ emissions, yet IS NOT applied to carbon that is expected to remain stable in a non-emitting form.

Extended Version

Consider the multiple end-states for carbon atoms that are derived from coal, oil, and gas, e.g.:

• In CO₂ released as a result of “raw material” leakage that ultimately breaks down in the environment (e.g. natural gas fugitive methane emissions which are a greenhouse gas in itself and will eventually break down into CO₂, oil environmental releases)
• In CO₂ released as it is combusted by the production process (e.g. refinery emissions, transportation, flaring)
• In CO₂ released as the end user consumes the product (e.g. gasoline or diesel fuel burned by a motorist, coal burned in a power plant)
• In CO₂ released after the end user is through consuming the product (e.g. isopropyl (“rubbing”) alcohol, which will typically evaporate after use and eventually degrade into CO₂, motor oil which may eventually be burned as a fuel
• In a solid material, NOT resulting in CO₂ emissions, as it resides in the end product (e.g. plastics, solids in asphalt, some chemicals)

Coal, oil, and gas are primarily used as fuels. When combusted, they release carbon dioxide, the primary greenhouse gas addressed by Carbon Fee and Dividend (Carbon Fee and Dividend).

Fossil Fuels as Feedstock

While combustion is the end-use of most fossil fuels, the chemical versatility of carbon makes these fuels valuable as raw materials as well. For example, a small percent of coal is used as a component in the production of steel, while about 15% of oil and a small (less than 5%) but growing amount of natural gas is used as a feedstock for other non-fuel uses (e.g. polymers, chemical feedstocks, asphalts, waxes, lubricants).

Since Carbon Fee and Dividend is exclusively intended to reduce greenhouse gas emissions, Carbon Fee and Dividend is to be crafted in a fashion that avoids applying a fee to coal, oil, and gas which is not expected to release CO₂ during or after its use. For example, plastics are a very-stable compound that will remain as plastic virtually forever, meaning it should not be impacted by the fee. Conversely, isopropyl (“rubbing”) alcohol, while not usually combusted, will typically evaporate after use and eventually break down into CO₂, meaning it should be impacted by the fee.

The end result for a product like plastic, for example, would be that there would be no carbon fee applied to the carbon content contained within the plastic itself. However, any carbon dioxide released as a result of the production (principally refining and transportation) of that plastic to the end user would incur the fee.

Carbon Fee and Feedstocks

With Carbon Fee and Dividend, the carbon fee is applied far upstream in the value chain to make collection administratively simple. However, this means that all end products, including non-combusted ones, would be subject to the fee.

Since Carbon Fee and Dividend is exclusively intended to reduce greenhouse gas emissions, Carbon Fee and Dividend includes a provision to allow end-users of fossil fuels to apply for a rebate for products that are not expected to be combusted when used. This would likely be exercised mostly be refiners and chemical plants. This rebate is intended to offset the increase in raw material cost incurred by the imposition of the carbon fee, which would be commensurate to the carbon dioxide potential of the end product if it had been combusted.