question archive Next we want to obtain a supply curve for carbon from this data
Next we want to obtain a supply curve for carbon from this data
Subject:EconomicsPrice: Bought3
Next we want to obtain a supply curve for carbon from this data. Let us focus on oil: we want to transform the oil supply data into"carbon units". One barrel of oil is 0.43 metric tons CO2/barrel (this number is from US EPA, (link)). The number is not exactly correct for this data, but this does not undermine the point of the exercise.
Of course, the real supply curve is for oil but nothing prevents us from trans- forming the supply into carbon units. Assuming that any given deposit will be supplied as soon as the price in the market exceeds the cost, you can thus find out how much carbon in total will be released as a function of the price.
Suppose that the carbon budget is 40% of the total available quantity of carbon in the ground. What is the tax per ton of CO2 that achieves this target? In this calculation, assume that the highest willingness to pay for a barrel of oil is 110 USD. Thus, this "choke price" is the price that one could get for the last barrel of oil. This could be defined by the cost of producing synthetic fuels, for example.
