# Oil Majors Call for Carbon Pricing



## begreen (Jun 2, 2015)

Now this is interesting. Notably absent is Exxon-Mobil. 
http://www.maritime-executive.com/article/oil-majors-call-for-carbon-pricing


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## BrotherBart (Jun 2, 2015)

Exxon and Chevron both. Exxon has shown support for a revenue neutral carbon tax for a long time and has been budgeting for it. All of them are coming out for it to stave off government mandates. Not out of any heart felt concern for the planet.


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## begreen (Jun 2, 2015)

In some sense that is understandable. They want predictability.


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## DougA (Jun 2, 2015)

Yup, add whatever taxes the gov't wants, we'll just pass it on to the chumps.  So long as the big oils don't have to clean up their act.

Maybe the new socialist gov't in Alberta will do something about the disgusting tar sands.


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## begreen (Jun 2, 2015)

Change is happening and quickly.
“The people who work for oil companies have spent their careers in a period of growth — always more, more, more. Suddenly it's now less, and that's a major shift and a major adjustment within the energy sector.”
http://www.pri.org/stories/2015-05-30/great-energy-transition-already-underway-according-new-book


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## Lake Girl (Jun 2, 2015)

I know one of the comments I saw from the Alberta companies was that they don't mind carbon tax as long as the consumers are paying the same...  Consumer's pay twice??  Once to underwrite the cost on the companies  as you know it will be built in to the cost of product and again as consumers?

Delivery costs from Hydro One is just about equal to the cost of electricity itself...


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## DougA (Jun 3, 2015)

Lake Girl said:


> Delivery costs from Hydro One is just about equal to the cost of electricity itself...


That's because they want to keep the base rates low so the Premier can continue to claim that Hydro rates are competitive when the real cost is the highest in NA.


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## jebatty (Jun 3, 2015)

Production costs including taxes get passed on to the consumer according to supply and demand, elasticity of the demand curve, availability of competitive products/services, knowledge of suppliers and consumers, tweaks/disruptions in the market caused by a whole variety of factors, including government intervention and regulation, incentives/disincentives, monopoly characteristics of the market, and more. Often, government intervention and regulation is initiated by big money power to influence government action for or against competitors or other factors that would reduce profits.

Availability of competitive wind, PV, hydro and other electrical technologies, and all of the above, will impact the extent to which a carbon tax on oil merely can be passed on to the consumer or will negatively impact the profits of the oil supply chain. As with all pricing, there will be winners and losers.


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## woodgeek (Jun 3, 2015)

As Mr. Spock would say...Fascinating.

I think it would be a fair statement that the majors don't WANT a carbon tax regime, but rather that some of them have been assuming it would happen eventually.

So, this letter would suggest one or more of the following has come to pass:

(1) The signers of the letter have suddenly gotten religion re AGW.  NB: this is not mere belief in AGW science, but rather the need for urgent action.
(2) The signers have concluded that carbon pricing is imminent, so they might as well get on board so as to appear virtuous and shape the process.
(3) The signers have developed a concern that **something worse** for their business than a carbon tax is currently blowing in the wind, and by drumming up support for a carbon tax, they hope to avoid the hypothetical **something**.

No offense, but I think (1) is laughable.
(2) also has a major problem...no-one going to Paris thinks a global carbon pricing regime is politically feasible...its NOT ON THE AGENDA.
So, we are left with (3), and the question of what is the dreaded **something** that keeps these oily dudes up at night??

The answer: *The Carbon Bubble*.

That is, a global agreement in principle to limit total global carbon emissions over a suitable span like before 2050 or 2100 to a finite value well below current BAU projections.  This IS the agenda in Paris.

The logic is this: If the world body has agreed to limit global emissions of CO2 over something like the lifetime of everyone currently living (thus for all business intents and purposes forever), how do we price the hydrocarbon assets currently in the ground? Do they decrease hugely in value? Do buried gas deposits suddenly become more valuable than buried oil (and that in turn more valuable the tar sands and coal)?? 

Yes and Yes.

-------------------------------------------

First they ignore you, then they laugh at you, then they fight you, then you win.  --Mahatma Gandhi


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## BrotherBart (Jun 3, 2015)

Carbon tax makes the most sense if the idea is to reduce pollution since higher cost puts downward pressure on consumption. Of course the revenues will never be spent for the avowed purposes. See: Tobacco and alcohol taxes.

Carbon credits, ie: cap and trade, aren't working in Europe. The market price of the things has fallen through the floor. That is why the European producers are preemptively lining up behind a tax, though they won't use the word. They know it is coming since none of the countries are reaching their reduction goals.

What everybody forgets is that either way it does't hurt the oil companies much. They aren't the ones that burn the product to release the carbon. Their customers who will be paying the tax do. They will just pay it for what is produced as a by product of their exploration and refining operations like any other manufacturer.

Edit: 

Oil companies: "Oh please don't throw me in that brier patch."


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## woodgeek (Jun 3, 2015)

The great thing (from the majors POV) about pricing carbon (as a tax/credit/whatever) is that it becomes a perpetual political scapegoat or football.  If it is painless, then it doesn't work.  If it painful, then it is unpopular.  A Wedge Issue in every election in the 21st century. In such a political briar patch, a few well funded PACs could indeed cause no end of mischief FOREVER.

The problem with every country simply agreeing to a target emission level or goal is enforcement.  In Kyoto, the idea was to make a treaty that every country would have to ratify (up front, and then never de-ratify later).  Its a hundred political footballs.

And yet the goal in Paris is, as in Kyoto, to set targets specifically for each country (where developing countries will be allowed to grow emissions for a little while).  Unlike Kyoto, it is not a 'treaty'.  A current popular idea for enforcement is to punish the non-compliant with intl trade tariffs (that would be enforced by an existing intl trade body like the WTO).  IOW, you only get to trade freely and be protected by the WTO IF you are compliant with the Paris accord.  Once the major traders like the G7 are onboard all the others have to go along or have thier economies crippled, or at least placed at a major competitive disadvantage.

In other words, your countries' potential GDP growth (via intl trade) becomes tied to you adhering to your carbon path, rather than the reverse (e.g stimulate GDP via increasing domestic good consumption)

I would guess that such a plan, if it came to the fore, would not be popular with the right in the US, as it cedes a US freedom 'to consume' to an international 'world govt' cmte.  Shudder.  But if every one of our major trading partners have an agreement to tariff our goods and the means to do so if we emit too much, what would Washington be able to do about it?

Implementation on the country level would be left up to each country to figure out.


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## Wildo (Jun 3, 2015)

So how can we put a tariff on goods if all the free trade acts ban tariffs?...  


Isn't this a path toward never ending litigation?...


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## DougA (Jun 3, 2015)

Wildo said:


> Isn't this a path toward never ending litigation?...


You have a problem with lawyers running the entire world??


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## woodgeek (Jun 3, 2015)

Wildo said:


> So how can we put a tariff on goods if all the free trade acts ban tariffs?...
> Isn't this a path toward never ending litigation?...



WTO enforcement currently penalizes violations of trade agreements by permitting other countries to tariff the offenders.


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## Wildo (Jun 3, 2015)

woodgeek said:


> WTO enforcement currently penalizes violations of trade agreements by permitting other countries to tariff the offenders.




So if you tariff somebody in a no tariff zone they can tariff you back?    

Sounds like litigation happy lawyers will be getting richer and taxpayers will be footing the bill.


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## woodgeek (Jun 3, 2015)

Nope.

If you were a country in the WTO and engaged in an illegal trade practice, e.g. dumping, the 'victim' country would appeal to the WTO, and if the WTO found they had a case, they would tell you to stop.  Without an enforcement mechanism, why would you?  The enforcement action is that the victim country gets to levy a tariff on your trade goods (e.g. the dumped ones) in excess of the damage.  The victim country collects the money, not the WTO.  The WTO would decide on the amount/duration/details, not the tariffing country, and decide when to end it if the offender becomes compliant.

In practice, while there are numerous complaints, it is rare that the offenders don't cave, because the threat of 'enforcement' works.

So, if the US signs into an carbon emission agreement and meets its goals, no problem.   If we don't, our trading partners get to tariff our goods.  If the cost of the tariff (in our reduced exports) exceeds the cost of compliance, we make sure to stay under the limit and comply.  And we do it knowing that our trading partners are held to the same agreement.

Its called 'external enforcement', versus we sign a treaty and then penalize ourselves for violations, internal enforcement.


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## jebatty (Jun 4, 2015)

Borrowing from the Grist article on this issue, I tend to agree with Woodgeek that this is all about gas, NG. By shifting to NG, burying coal, the argument is that carbon goals can be met, and painlessly from Big Gas (Oil) perspective. Looks a little like a shell game. Big Oil > Big Gas


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## Lake Girl (Jun 4, 2015)

The local pulp and paper mill (formerly Resolute, Abitibi, Stone, Boise) had air emission targets that it was supposed to meet.  I think the last data I saw was 2008 - out of 365 days there were approximately 270 exceedance days.  The cost of the fines from MOE were just the cost of doing business and apparently cheaper than fixing the problem.  I don`t see a carbon tax being much different.  

Ontario Hydro bought sections of the Rainforest in prep for the carbon cap and trade scheme that was under discussion years ago.


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## DougA (Jun 4, 2015)

Lake Girl said:


> Ontario Hydro bought sections of the Rainforest in prep for the carbon cap and trade scheme that was under discussion years ago.


Gee, I paid for that too.  Didn't know I owned a chunk of rain forest.


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## woodgeek (Jun 4, 2015)

jebatty said:


> Borrowing from the Grist article on this issue, I tend to agree with Woodgeek that this is all about gas, NG. By shifting to NG, burying coal, the argument is that carbon goals can be met, and painlessly from Big Gas (Oil) perspective. Looks a little like a shell game. Big Oil > Big Gas



Still don't know if its that simple.  Many oil cos valuation is based upon projected (deemed low risk) future earnings, as well as resources in the ground if they hold the license.  IF they are selling a lot less expensive oil, and a bit more gas, their earnings are hit.  If the oil has to stay in the ground, the license becomes worthless.

The valuation of many of the oil co could take a big hit if an enforceable agreement emerges from Paris in December.

Re the Carbon Tax, still don't see it happening anytime soon in the US, even after we sign on in Paris.  The US carbon path expected to emerge from Paris resembles the one we outlined with China a few months ago, which in turn looks a LOT like the current EPA plan, at least for the next 10 years or so. And that plan does not rely on a Carbon tax, nor is one needed.

The big question is if, a la the ACA, if some states decide to opt out of the plan and sue the EPA instead, how do the Feds penalize those states to avoid the whole country getting punished for their over-emission via a WTO mechanism (or equivalent external enforcement mechanism)?


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## Lake Girl (Jun 4, 2015)

DougA said:


> Gee, I paid for that too.  Didn't know I owned a chunk of rain forest.



We also paid sponsorship of a sailboat .... it did get caught and cancelled but not sure how much was paid.   http://boating.ncf.ca/news2002.html#hydro


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## begreen (Jun 8, 2015)

woodgeek said:


> The big question is if, a la the ACA, if some states decide to opt out of the plan and sue the EPA instead, how do the Feds penalize those states to avoid the whole country getting punished for their over-emission via a WTO mechanism (or equivalent external enforcement mechanism)?


On that note, it looks like the IMF is assessing the "true costs" of fossil fuel. This from one of the members examining the issue:

_“A number of people will argue maybe we should not add these things up,” says David Coady, division chief at the Fiscal Affairs Department of the IMF and one of the authors of the report. “But from an economic perspective, we say, conceptually, the true cost is the true cost. The reason we don't face the true cost is there's no market for these damages.”_

Estimated cost is $5.3 trillion a year. Guess who pays that bill?


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## woodgeek (Jun 27, 2015)

David Roberts' take on the Oil Cos letter:

http://www.vox.com/2015/6/5/8733601/big-oil-carbon-price

Re calls for an external enforcement mechanism:

http://www.nytimes.com/2015/06/03/b...ent/climate-deal-badly-needs-a-big-stick.html


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