Here’s what you need to know about the NDP program and gas prices.
The NDP cap-and-trade program would require “big emitters” including oil refineries and major producing sites including oil sands facilities to buy emission permits at auction, with a price floor at $45/ton. This will increase the costs of producing oil and refining gasoline. The maximum increase in gas prices would result if all of the increased marginal costs of production were passed through to consumers.
Production and refining emissions from gasoline production are about .875kg/l of gas for the average barrel of crude in North America, and closer to 1kg/l for oil sands. This means that marginal gasoline production costs would increase approximately 3.93c/l at $45/t.
While I agree with Dr. Mintz that an ideal system would place a carbon price on the entire 3.5-4 kg/l of ghg emissions embedded in gasoline, the NDP system does not do that. As such, there is no reason to expect that companies could pass through 10c/l of costs while incurring additional marginal costs of 4c/l .
Changed below for clarification – 9:00pm 4/29/2011
The proportion auctioned should not be expected to have any effect on the eventual gas price increase. With a 25% auction, the average cost increase on gasoline production (in the early years) would be closer to 1c/l. However, since the value of the permits at the margin (what a firm could sell a permit for if they opted not to produce the gasoline) would still be $45/t, the price effect would reflect that value in a competitive or monopolistic market. So, regardless of whether the NDP chose to auction 100%, 50%, 25%, or give all the permits away for free, you should expect similar gas price swings.
That’s what you need to know. If you don’t want to take my word for it, check in on Clare Demerse’s blog.