Worked example 1
A logistics company uses 500,000 litres of diesel per year. Diesel emits 2.68 kg CO2e per litre. The government introduces a carbon tax of $50 per tonne of CO2e. Calculate the annual cost of this tax and the payback period for a $150,000 investment in more fuel-efficient trucks that reduces fuel consumption by 20%. Assume diesel costs $1.50 per litre.
Show solution outline
Step 1: Calculate total annual emissions.
Step 2: Calculate the annual carbon tax cost. Tax Cost = 1,340 tonnes × $50/tonne = $67,000
Step 3: Calculate annual savings from investment. Annual fuel cost saving = 100,000 litres × $1.50/litre = $150,000 Tax saving = 20% × $67,000 = $13,400
Step 4: Calculate total annual cost saving. Total Saving = Fuel Saving + Tax Saving = $150,000 + $13,400 = $163,400
Step 5: Calculate the payback period. Payback Period = $150,000 / $163,400 = 0.92 years 0.92 years × 12 months/year ≈ 11 months
Conclusion: The carbon tax adds a significant cost of $67,000 per year. However, the investment in fuel-efficient trucks is highly attractive, paying for itself in just 11 months due to both fuel and tax savings.