Natural Gas Pricing Based On Social Costs of Carbon: A Case Study of Kerman Province

Due to the increasing demand for natural gas and its benefit of producing less carbon compared to other fossil fuels, pricing the natural gas based on the social expenses is becoming necessary more than ever. Accordingly, presenting models that enable us to find coordination between natural gas pricing and the final cost of carbon reduction is of high importance. This study aims to find the relationship between natural gas pricing, carbon rent, and the degree of pollution caused by natural gas. To this end, the final cost of CO2 reduction for two carriers of natural gas and gas oil in Kerman province has been calculated; Then the measures of social costs based on carbon expenses for natural gas and gas oil in 3 sections of the power plant, industry and houses is conducted. This study presents the evaluation of the final cost of carbon caused by natural gas and gas oil for the three mentioned sectors. The results indicate that the final costs of carbon caused by natural gas are always lower than the final costs of carbon caused by gas oil. This is the major reason as to why the social costs of natural gas are lower than of gas oil in the three sectors. Moreover, the results show that there is not a significant difference between the rates of the final cost of natural gas and the price of natural gas delivery to the end-users in 2013-2016. This is due to the little amount of pollution natural gas produces and the relatively low cost of its pollution. However, the rate of delivery cost to the power plant is 8 percent of social costs and 9 percent of the final costs of natural gas.