Exxon Will Push Hard for a Carbon Tax. What’s its Rationale?

by | Jul 1, 2016

exxonExxonMobil is saying that it now wants to lead a national effort to enact a carbon tax. While the oil giant has supported a carbon tax since 2009, its previous efforts have been tepid. The Wall Street Journal is reporting, however, that it wants to take the lead in this effort. What’s the rationale?

More than likely, the oil company sees that inevitable trend toward more carbon constraints. By coming to the table — not working behind the scenes to block efforts — it feels it is able to have more of an impact on any legislation. And even if such laws are never enacted, it will be able to say publicly — read PR efforts — that it has tried to make a difference.

All this, meanwhile, comes on the heels of efforts of some state attorneys general including those in New York and Massachusetts to have Exxon turn over documents dating back decades — ones that allegedly show that the oil company has long known of the consequences environmentally from burning oil; that it leads to the earth’s warming and the resulting fallout from that climate change.

“Of the policy options being considered by governments, we believe a revenue-neutral carbon tax is the best,” Suzanne McCarron, the company’s vice president of public and government affairs, wrote in May in the Dallas Morning News, as reported by the Wall Street Journal. Besides Exxon, the journal says that BP and Royal Dutch Shell have also come out in favor of a carbon tax. Chevon, it reports, is an outspoken opponent of a carbon tax. 

Under a carbon tax, government would tax utilities according to their carbon footprints that can be readily measured. NextEra Energy says that it is a fairer way to compute results and that it is easier to administer than a cap-and-trade system. The proceeds from the carbon fee would then be targeted directly to an account that would help fund the development of new technologies.

A joint report issued by the Brookings Institution and the American Enterprise Institute says that pricing carbon is the most efficient way of reducing carbon dioxide releases that are tied to global warming. A $16 tax per ton would raise $1.1 trillion in the first 10 years.

“The largest source of greenhouse gas emissions is carbon dioxide from the combustion of fossil fuels, so many economists particularly advocate an excise tax on the carbon content of those fuels, or a ‘carbon tax,’” write AdeleMorris and Aparna Mathur, economists with Brookings and AEI, respectively, which represent just left and just right of center on the political spectrum.

Conservative legends such as George Shultz, former U.S. Secretary of State under President Reagan, support a carbon tax. His argument is that the producers don’t bear the environmental price; rather, it is the broader society. And a carbon tax would even the playing field.

Shultz adds that that British Columbia has such a carbon tax. In that case, the government there gradually increased the tax and then redistributed it to individuals, making it popular. He adds that the Republicans have historically been known as the party that issued policies to protect the environment, noting that it was under President Nixon that the 1970 Clean Air Act passed.

“We have to have a system where all forms of energy bear their full costs,” says Shultz. “For some, their costs are the costs of producing the energy, but many other forms of energy produce side effects, like pollution, that are a cost of society.

“The producers don’t bear that cost, society does. There has to be a way to level the playing field and cause those forms of energy to bear their true costs. That means putting a price on carbon. We’ve studied a variety of ways to do that, and to me the most appealing way is a revenue-neutral carbon tax. That is, you distribute all the revenue from the carbon tax in some fashion back to taxpayers, so there is no fiscal drag on the economy,” Shultz concludes.

Most of the earlier discussions centered on a carbon tax or cap-and-trade scheme, where carbon ceilings are set and utilities must meet them, or buy credits that allow them to exceed such limits. But those debates occurred after President Obama came to Washington and when his party controlled both legislative chambers. When the Republicans took over the U.S. House in 2010, those ideas died.

“Although both a tax on emissions and a cap-and-trade system use the power of markets to achieve their desired results, a tax is generally the more efficient approach,” says Peter Orszag, former director of the Congressional Budget Office. “Studies typically find that over the next several decades, a well-designed tax would yield higher net benefits than a cap-and-trade approach.”

If any entity can move a reluctant Congress toward putting a price on carbon, it is Exxon. Just how hard it will push, though, is a different question and may depend on whom is elected the next US president.

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