Here’s why Big Oil would back a carbon reduction plan
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Some of the biggest oil and gas producers in the country have now endorsed a plan to tax emissions from their products.

Why would they do that?

And why are some environmental activists scorning corporate support for a climate action plan?

On Tuesday the Climate Leadership Council announced that energy giants Exxon Mobil, BP, Shell, and Total had joined seven other corporations plus Conservation International and the Nature Conservancy as its founding members.

The CLC was launched earlier this year by conservative economists and businessmen and Republican elder statesmen, including former Secretaries of State James Baker III and George Schultz and former Secretary of the Treasury Henry Paulson Jr. 

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Their plan proposes a gradually increasing carbon tax, starting at $40 per ton. The revenue would be rebated to Americans as a dividend, starting at roughly $2,000 a year for a family of four.

 

In return for the carbon tax, CLC seeks to eliminate regulations such as the Clean Power Plan and tort liability for emitters.

As I wrote when the plan was released in February, that’s a deal that liberals should welcome. CLC proposes to set the tax sufficiently high for the United States to meet President Obama’s Paris Agreement pledge, even as other regulations are rolled back.

Putting a price on pollution boosts clean energy technologies like wind, solar, nuclear, and efficiency at the expense of big polluters, without relying on costly subsidies.

But why would oil and gas producers want to tax themselves billions of dollars per year? Several factors are at play.

First, even ExxonMobil now accepts that climate change is real and man made and that action is needed to address it. They joined dozens of companies in backing the Paris climate accord and urging President Trump to stay in it.

Second, natural gas producers like Exxon Mobil would at first gain a competitive advantage in power markets. A $40/ton tax would add 4.2 cents to the cost of each kilowatt-hour from coal, but just 1.6 cents for efficient natural gas plants.

In competitive markets, even fractions of a cent can swing market share from coal to gas. It is telling that no coal mining companies or electric power producers joined the CLC founders.

Wind, solar, and nuclear would of course fare even better by avoiding the tax. But it could take decades for wind and solar to scale up to dethrone natural gas, and nuclear has recently been cost-prohibitive to construct.

Meanwhile, a $40 tax would add just 36 cents to the cost of gasoline. That’s too low to push most drivers away from their gas-fueled cars as oil companies recoup the tax at the pump.

Moreover, energy producers crave stability as they plan long-term investments in projects to produce, transport, and refine their products. They know that Republicans who don’t acknowledge climate science won’t control the White House and Congress forever.

Policy uncertainty imperils those investments. Future regulatory mandates or tort liability could jeopardize entire projects or put companies at risk for massive losses. A cap-and-trade market could create wild swings in costs for emissions allowances. By contrast, a preset carbon tax would let companies select investments with greater clarity.

All of this gives oil and gas producers strong reason to back the CLC plan, despite the massive taxes on their products. Meanwhile, the climate, air quality, water, and health would all benefit from the shift from the dirtiest fossil fuels to natural gas and clean energy.

That sounds like a win-win for environment and most of the energy industry, apart from a coal sector whose market capitalization is smaller than Snapchat and workforce is smaller than Arby’s.

Yet some environmental activists have scorned oil and gas companies for endorsing the CLC plan.

As reported by EcoWatch, Greenpeace accused the companies of “protecting executives from legal accountability for climate pollution and fraud.” The communications director of 350.org said ExxonMobil supports the proposal “because they know it's dead-on-arrival, but hope it will distract from the ongoing investigations into whether the company lied to the public."

The executive director of Food and Water Watch asserted that “there is no evidence that carbon taxes reduce carbon emissions.”

The CLC proposal may indeed be dead-on-arrival in Washington today.

But corporate backing can only help its chances in the future. And it’s unclear how prosecuting oil companies or their executives would yield anywhere near the environmental benefits of a strong carbon tax.

Some carbon taxes have indeed achieved mixed results. But that’s mostly because they’ve been set too low, or been tried in regions that get far less of their electricity from coal.

The CLC plan does involve a bargain, replacing the Clean Power Plan and tort liability with a carbon tax.

But the Clean Power Plan has yet to be implemented, and its goals are nearly met thanks to market forces that a carbon tax would accelerate. And while lawsuits have inflicted enormous legal bills on all sides, it’s unclear that they’ve been effective at keeping oil in the ground.

That’s not to say that the CLC carbon tax is sufficient to fully address climate change. It’s too low to speed the transition away from gasoline-guzzling SUVs, and it doesn’t address the need to enhance the electric grid to accommodate more wind and solar.

Perhaps oil and gas companies do have ulterior motives for embracing the CLC proposal. And no plan will become law until unretired Republicans in Congress and the White House accept the science of climate change and the need to act on it.

Until then, though, corporations should be welcomed rather than scorned for embracing an aggressive plan that meets the needs of businesses and the environment.

Dan Cohan is associate professor of civil and environmental engineering at Rice University.


The views expressed by contributors are their own and are not the views of The Hill.