Evaluating the potential impacts of carbon tax cost passing strategy on petrochemical selling prices

To meet their commitments to Paris climate accord, governments around the world have begun to introduce emission pricing schemes such as carbon taxes with the intention of curbing the greenhouse gas (GHG) emissions and at the same time promoting the development of low-carbon technologies. However, adoption of such taxes has prompted major concerns among the industries, especially for large emitters such as petrochemical manufacturing plants, since it will substantially increase their operating costs and hence directly affect their competitiveness in the global market. This paper proposes a bottom-up framework for modeling the potential impacts of a carbon tax introduction on petrochemical selling prices. The framework has been developed using a set of mathematical equations that links the amount of GHG emissions with the carbon tax rates. The required increases in the petrochemical product prices are then projected for compensating the incurred emission costs. The goal is to retain the same production revenues prior to carbon tax imposition—this is known as tax passing strategy. To illustrate the approach, a case study involving productions and supply chains of four petrochemical products—acetic acid, bisphenol-A, nylon-6,6, and polypropylene—is considered.