Impact of Kyoto on the cost structure of the world’s resource industry

Mineral Economics & Management Society (MEMS) Annual Conference, Golden Colorado, April 2003

This paper identifies the carbon-intensity per tonne of 27 different mineral commodities. These were then compared against their current unit selling price to determine how many tonnes of carbon is generated per $1000 of sales revenue. From this it is simple exercise to calculate the impact of (say) a $50/t carbon tax on the cost/price of a given commodity.

The main conclusions are that the cost structure (and hence price) of most commodities will not be significantly affected by a carbon tax. However, there are some energy/carbon intensive materials which will be severely impacted . These include aluminium, alumina, cement and lime (the latter two low cost-low value commodities that generate large volumes of CO2 in their production).

As a further refinement, the study looked at where these commodities were produced. If most of a given commodity is produced in countries that do pay a carbon tax (ie are in Annex 1 of the Kyoto Protocol) then it can be assumed that most of the cost of the tax will be transferred to the consumers in the form of higher commodity prices.

Conversely, if most production is based in Developing Countries (which don’t pay tax) then the impact of a carbon tax on the industry as a whole will be minimal – and prices won’t rise. The bad news is if you have a carbon-intensive operation in an Annex 1 country (which pays a carbon tax) but most of your competitors are in Developing Countries.

The Paper speculates that the supply-chains for some commodities could be disrupted as carbon-intensive steps (such as copper smelting) close down in Japan and relocate to developing countries like China.

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