Yes, you read that correctly
A group of the world’s largest oil companies is calling for the United Nations to issue a carbon tax on hydrocarbon development.
All based in Europe, the six chief executives who were signatories to the letter to the United Nations are:
- BG Group (ticker: BG),
- BP plc (ticker: BP),
- Eni Corp. (ticker: E),
- Royal Dutch Shell (ticker: RDS.B),
- Statoil (ticker: STO),
- Total SA (ticker: TOT)
The statement acknowledged climate change as an issue and expressed their devotion to limiting emissions and exploring new energy technologies.
“For us to do more, we need governments across the world to provide us with clear, stable, long-term, ambitious policy frameworks. This would reduce uncertainty and help stimulate investments in the right low carbon technologies and the right resources at the right pace. We believe that a price on carbon should be a key element of these frameworks.”
The supermajor consortium offered to open direct dialogue with the United Nations and “willing governments,” hoping to reach “an appropriate ground for public-private dialogue on how to price carbon into energy.”
The Carbon Disclosure Project, a carbon emissions watchdog based in the United Kingdom, published a report in 2013 that disclosed several of the larger oil companies were already incorporating carbon taxes into their long term plans.
Not All Participated
Noticeably absent from the list are the largest oil and gas companies in North America.
ExxonMobil has addressed the issue before, and began including a carbon proxy price in its business planning in 2007. Ken Cohen, Vice President of Public Affairs for ExxonMobil, said, “the risks of climate change are real and the risks warrant action.” However, Cohen believes fixing the emissions issue is a market-related matter rather than relying on various government-implemented regulations or standards. The world’s largest oil major has publicly said it prefers a cap-and-trade scenario to provide predictability and transparency.
John Watson, chief executive officer of Chevron, told the Financial Times that his company had “no intention” of signing the United Nations bill. His reasoning was not to brush off climate change (CVX is the largest renewable producer among oil companies, according to Watson), but because the taxes will cause the price of resources to increase.
He concluded, “For policy makers to have as the premise for their strategy to combat greenhouse gas emissions raising the cost of energy worldwide for the people who can least afford it is, I think, not a policy that is going to be effective because customers want affordable energy.”
XOM and CVX shareholders both rejected the idea of adding climate specialists to the compaies’ respective boards in their recent annual meetings.
Trouble for Coal
The increasing abundance and affordability of natural gas is wrestling market share away from coal, which has been the target of President Obama’s Clean Power Plan. Certain executives have accused the President of deliberately trying to kill the coal industry.
A recent article by The Telegraph detailed how a “misjudged” carbon tax in Great Britain ultimately put two of the country’s largest coal power plants out of business.
The article explains: “In 2010, however, the government saw an opportunity to raise billions in new tax revenue. It unilaterally made British carbon prices much higher, to be collected in tax, by adding a top-up to the EU price. It would deliver a rising price curve for the electricity-generating sector, far higher than that faced by similar plants across the EU.”
The mark-up ultimately made coal uneconomic, forcing the closures of the coal plants. If the issues are not addressed, “It will mean the final collapse of the domestic coal industry as its customer power stations refuse to forward-purchase coal due to uncertainty, thereby inhibiting any proposed new mining investments,” the Telegraph said.
How Do Carbon Taxes Go Over with Voters?
Australia is one country that had put forth a carbon tax in 2012 only to repeal it in 2014.
“Today, the tax that you voted to get rid of is finally gone: a useless, destructive tax which damaged jobs, which hurt families’ cost of living and which didn’t actually help the environment,” Prime Minister Tony Abbott told reporters in Canberra, as reported by the Associated Press.
Joint Letter from European Majors
Dear Excellencies:
Climate change is a critical challenge for our world. As major companies from the oil & gas sector, we recognize both the importance of the climate challenge and the importance of energy to human life and well-being. We acknowledge that the current trend of greenhouse gas emissions is in excess of what the Intergovernmental Panel on Climate Change (IPCC) says is needed to limit the temperature rise to no more than 2 degrees above pre-industrial levels. The challenge is how to meet greater energy demand with less CO2. We stand ready to play our part.
Our companies are already taking a number of actions to help limit emissions, such as growing the share of gas in our production, making energy efficiency improvements in our operations and products, providing renewable energy, investing in carbon capture and storage, and exploring new low-carbon technologies and business models. These actions are a key part of our mission to provide the greatest number of people with access to sustainable and secure energy.
For us to do more, we need governments across the world to provide us with clear, stable, long-term, ambitious policy frameworks. This would reduce uncertainty and help stimulate investments in the right low carbon technologies and the right resources at the right pace.
We believe that a price on carbon should be a key element of these frameworks. If governments act to price carbon, this discourages high carbon options and encourages the most efficient ways of reducing emissions widely, including reduced demand for the most carbon intensive fossil fuels, greater energy efficiency, the use of natural gas in place of coal, increased investment in carbon capture and storage, renewable energy, smart buildings and grids, off-grid access to energy, cleaner cars and new mobility business models and behaviors.
Our companies are already exposed to a price on carbon emissions by participating in existing carbon markets and applying ‘shadow’ carbon prices in our own businesses to test whether investments will be viable in a world where carbon has a higher price.
Yet, whatever we do to implement carbon pricing ourselves will not be sufficient or commercially sustainable unless national governments introduce carbon pricing even-handedly and eventually enable global linkage between national systems. Some economies have not yet taken this step, and this could create uncertainty about investment and disparities in the impact of policy on businesses.
Therefore, we call on governments, including at the UNFCCC negotiations in Paris and beyond – to:
introduce carbon pricing systems where they do not yet exist at the national or regional levels
create an international framework that could eventually connect national systems.
To support progress towards these outcomes, our companies would like to open direct dialogue with the UN and willing governments. We have important areas of interest in and contributions to make to creating and implementing a workable approach to carbon pricing, including:
1. Experience. For more than a century we have provided energy to the world. We are global in reach, closely familiar with managing major projects and risks of many kinds, and well-versed in trading and logistics. As we are already users of carbon pricing systems across the world, exchange of information at international scale could help to identify the best solutions.
2. Motivation. We want to be a part of the solution and deliver energy to society sustainably for many decades to come. Like our counterparts in other industry sectors we will play a key role in implementing the measures and deploying the technologies that will lead to a lower carbon future. Low carbon business models and solutions are fragile until they reach critical size, but with linked carbon pricing systems worldwide, uncertainty would be reduced and such solutions will start to create value for business more rapidly.
3. Pragmatism. We believe our presence at the table could be helpful in designing an approach to carbon pricing that would be both practical and deliverable, as well as ambitious, efficient and effective.
4. A forum for discussion. Our companies and others have come together under the auspices of the World Economic Forum to form the Oil & Gas Climate Initiative, or are members of the International Emissions Trading Association, the World Bank or the UN Global Compact Carbon Pricing initiatives. We believe these forums may offer an appropriate ground for public-private dialogue on how to price carbon into energy.
Practically, we and our senior staff will seek to engage and share our companies’ perspectives on the role
of carbon pricing in several important settings:
in our meetings with Ministers and Government representatives.
as we attend and address conferences
as we hold engagements with our investors
as we conduct meetings with other stakeholders including partners, suppliers, academics and researchers
as we hold meetings for management and staff within our businesses.
Pricing carbon obviously adds a cost to our production and our products – but carbon pricing policy frameworks will contribute to provide our businesses and their many stakeholders with a clear roadmap for future investment, a level playing field for all energy sources across geographies and a clear role in securing a more sustainable future.
We acknowledge the long-term challenge and appreciate that this will be transformative across the energy sector. Over many decades, our industry has been innovative and has been at the forefront of change. We are confident that we can build on our trajectory of innovation to meet the challenges of the future.
Each of us will copy this letter personally to key contacts among investors, governments, civil society and our staff.
Signatories:
BG Group plc
Mr. Helge Lund
BP plc
Mr. Bob Dudley
Eni S.p.A.
Mr. Claudio Descalzi
Royal Dutch Shell plc
Mr. Ben van Beurden
Statoil ASA
Mr. Eldar Saetre
Total S.A.
Mr. Patrick Pouyanné
