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3. Should a government cap indirect emissions?

Direct emissions are the emissions that a facility emits directly from its own chimney into the atmosphere.

Indirect emissions are the emissions by the customers or the suppliers of materials and services to the facility.

e.g. a petroleum refinery has direct emissions from its many stacks directly into the atmosphere.

The refinery’s indirect emissions include the emissions of its customers when they burn gasoline, and the emissions of the suppliers of electricity and crude petroleum to the refinery.

Capping facilities for their indirect emissions, i.e. for emissions by their customers, is a serious mistake. If the refinery’s indirect emissions by its customers were capped, motorists who consumed gasoline from the refinery would not be under any regulatory obligation to reduce their greenhouse gas emissions. Instead, the motorists would see a price increase of about 5% in the price of gasoline, varying with the week-by-week price of allowances. The motorists would resent this price increase but would not reduce their emissions. If the government made allowances so scarce that the price of gasoline increased by a large percentage, e.g. 70%, motorists would begin to reduce their fuel consumption, but many vulnerable people would be hurt.


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