Carbon Taxes are all about the money

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Carbon Taxes are all about the money

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Washington likes the idea because it means a big increase in tax revenues and they can tell "the sheep" that it is to punish the mean companies that produce coal, oil and gas. What they don't tell the voters is that the tax will be passed on to consumers in the form of higher fuel prices. It is ALWAYS about the money!

From Ryan Ray: Dr. Energy aka Dr. Ellen Wald is back with her Wednesday piece.

The American Petroleum Institute (API), the premier trade organization for oil companies in the U.S., made headlines recently when it revealed that it is considering supporting carbon-pricing policies. Many are left wondering why the API would support higher prices on oil and gas and their products, which is meant to disincentive their use? As API considers its options, here’s an explanation of what is happening.

What is carbon pricing?

Carbon-pricing schemes fall into two different categories. The first is an emissions trading system (ETS) or cap-and-trade systems, which is generally considered a “conservative,” market-based approach to reducing carbon emissions. It establishes limits on greenhouse gas (GHG) emissions, but it creates leeways by permitting companies to buy and sell extra allowances based on how much they emit over or under the cap. Theoretically, ETS would establish a market price for carbon emissions and decrease aggregate emissions. Notably, ETS does not include a central setting of price by any government entity.

In Europe, the European Emissions Trading System covers 11,000 emissions producers in 31 countries but the system hasn’t worked out as planned. It is so complex that monitoring is virtually impossible and there has been widespread cheating. California implemented an ETS in 2013 that tried to improve upon Europe’s model by only including a smaller number of major emitters. The system hasn’t suffered from the same problems seen in Europe, but it isn’t clear if it is actually responsible for reducing California’s GHG emissions. However, it has generated $5 billion in revenue for the state since implementation.

The other carbon-pricing scheme takes the form of a carbon tax. In this setup, the government sets a price for carbon emissions and charges companies that emit GHGs a tax based on that. Sweden was one of the first countries to establish a carbon tax in 1990. Taxes there differ based on sector—for example the transportation sector pays higher carbon taxes than industry—and the effectiveness of this tax is in question. A 1995 analysis revealed that outside of transportation, only the heating sector saw a GHG benefit from the tax. The regressive nature of these taxes have also met resistance. They were the impetus for the yellow vest riots in France in 2019.

What’s really behind big oil’s support for carbon pricing?

Some of API’s members have been pushing for a more environmentally-friendly stance, and it is a member-driven organization. Total, for example, said that it dropped its membership for 2021 because API’s climate positions didn’t align with Total’s more aggressive stances. Shortly after that, API announced that it would consider supporting carbon pricing.

Big Oil companies, including BP, ConocoPhillips, ExxonMobil, Shell and Total have officially come out in support of carbon pricing schemes for some time now. ExxonMobil, for example, supports the Baker-Schultz carbon dividend plan and has given at least $1 million to Americans for Carbon Dividends, an organization that supports implementing the Baker-Schultz Plan. Shell, Total and BP also support this plan. The Baker-Schultz Plan calls for a tax on corporations that produce fossil fuels and the government redistribute that money in a “dividend” to American taxpayers. (The Climate Leadership Council, which came up with this scheme, estimates the dividend would be about $2000/year for a family of four). The scheme also includes a border adjustment tax, so companies receive a tax break when they export fuel to countries with similar taxes.

Big Oil’s support for carbon pricing is predicated, in part, on the expectation that the government would repeal “much of the EPA’s regulatory authority over carbon dioxide emissions” including “an outright repeal of the Clean Power Plan.”

But there is another, simpler reason for Big Oil’s support: it is good business. The board members and executives have a fiduciary duty to their shareholders. In the long run—say, years down the line—carbon pricing may not help them, and it’s possible that carbon pricing would not result in decreased regulation. However, Big Oil has realized that the market today wants to see good immediate financials and pro-environment policies. To help their own stock prices in the immediate future, Big Oil knows that the best move is to support policies like carbon pricing. Investors seem to want environmentalist oil companies, especially if they are profitable too.

Why isn’t there more political support for carbon pricing?

The question then is: if Big Oil and environmentalists like carbon pricing, why are these policies not progressing in the U.S.? Who opposes carbon pricing and why? Is it not the perfect compromise between two influential groups that usually disagree?

Carbon pricing proposals seem to go nowhere because most of the environmental left doesn’t actually support them. These proposals are too moderate, and the environmentalists will not give up on regulation. The Biden administration, for instance, has no plans to push for carbon taxes or a nation-wide ETS. They don’t want to give up power (aka regulatory authority) in exchange for a quasi-market based system or a tax. Carbon pricing is intended as a scheme to set market controls on GHG. Environmentalists don’t want to leave it up to the market; they want to oversee control themselves.
Dan Steffens
Energy Prospectus Group
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