Oil majors vocal but not active on carbon tax legislation
Back in May, six of the largest oil and gas companies in Europe, including BP and Shell, signed a letter to world leaders formally requesting an explicit price on carbon, which argued that carbon pricing would lead to greater efficiency and consistency across the energy market. While no US energy companies signed the letter, Exxon-Mobil Spokesman Richard Keil recently spoke out by saying a revenue-neutral carbon tax could be a predictable policy tool to address carbon emissions. Statements made by ConocoPhillips’ and Chevron also suggest market-based mechanisms for confronting climate change could encourage competition and maintain cost-effectiveness for businesses. The Economist report looks at whether the oil majors are serious in advocating carbon-pricing system, but concludes that however vocal companies are about taxing carbon, they are less visible pressing for carbon-price legislation.

“I DON’T think putting a price on carbon is necessarily the answer,” John Watson, the boss of Chevron, an American oil company, said in remarks reported in the Financial Times in June. “I've never had a customer come to me and ask to pay a higher price for oil, gas and other products.” It might seem safe to assume that all oil-and-gas businesses would share his dismissive view. After all, a levy on carbon dioxide, whether via a cap-and-trade system along the lines of the EU's Emissions Trading System, or via a carbon tax, should be about as welcome to their industry as Christmas is to turkeys. Yet since 2007 Exxon Mobil, the world's biggest publicly listed oil company, is proposing a carbon tax, and has already put a shadow price on each tonne of CO2 it emits. And in the lead-up to the climate-change summit that starts in Paris at the end of this month, six European oil majors have advocated carbon-pricing systems. Are they serious? If so, why this strange burst of altruism? Cynics start from the premise that this is a public-relations exercise, rather than a commitment to wean the world off fossil fuels—which still account for 87% of the global energy mix. They note that the oil majors which are supportive of a carbon price put the onus on governments to implement it, knowing full well that higher petrol prices look like vote-losers in many parts of the world. And they point out that the industry is divided. State-run oil companies are as sceptical as Mr Watson. And like Chevron, Exxon Mobil declined to join the six European energy companies in signing their letter to the UN.

But the more splits there are, the less lobbying clout the industry has. And there are reasons why supporting a carbon tax could work in the industry’s favour. First, it enables them to launch a stealth attack on coal—usually a dirtier but cheaper fossil fuel. Bob Dudley, the boss of BP, a British major, says switching just 1% of power generation away from coal-fired plants to those fired by natural gas would cut global CO2 emissions by as much as increasing renewable energy capacity by 11%. Already the industry is emphasising natural gas over oil (BP, for example, is increasing the ratio of gas to oil from 50:50 to 60:40). Coal-fired power plants are being shut across much of the developed world. What is more, a robust carbon price can make it easier to decide where to invest for the future. Like Exxon Mobil, many of the oil companies make investment decisions based on proxy carbon prices. But the pricing ranges from less than $5 per tonne of C02 to more than $150; the uncertainty is vast.

Ultimately it makes sense for the industry to shift onto the front foot over climate change, however much motivation the PR provides. Shareholders are threatening to divest from dirty businesses. There are fears that the “decarbonisation” movement could leave the biggest companies with vast amounts of stranded—or unburnable—reserves. However, it is one thing to call for carbon pricing, and another to actively lobby to bring it about. Exxon Mobil opposed a cap-and-trade bill in America in 2009, arguing that a carbon tax would be better. So far, America has neither. And however vocal companies are about taxing carbon, they are less visible pressing for carbon-price legislation, such as the American Carbon Fee Act, which seeks to put tax the “social cost” of carbon starting at a rate of $45 a tonne. The less overt support there is for such bills, the less likely is it that carbon pricing will develop the momentum it needs to go global.