Robert Repetto is a Senior Fellow of the Energy Future Coalition. The following article represents his personal views and not those of the organization.
What does it mean when Exxon Mobil, whose own sales and operations have been responsible for a staggering 3.2 percent of cumulative global carbon emissions[i], more than those of most nations, comes out in favor of a carbon tax?[ii] Has the company finally come around to a position of environmental responsibility, realizing how critical the climate problem has become, or is there a hidden strategy behind its position? In light of the company’s history, there are ample reasons for skepticism.
For decades, Exxon Mobil has funded climate change deniers and made large political contributions to Members of Congress opposed to limits on carbon emissions, including Senator James Inhofe, Chairman of the Senate Environment and Public Works Committee, who has repeatedly called climate change a hoax, and Representative Fred Upton, Chairman of the House Energy & Commerce Committee, who has denied that climate change is man-made.[iii]
Currently, the company is under investigation for fraud by New York’s attorney general for allegedly concealing its exposure to climate risks and changes in the value of its oil reserves. When oil prices and market conditions change, the company does not alter its estimate of reserves, more than a third of which are oil sands in Alberta, However, since “reserves” are those deposits that can be extracted profitably at current prices with currently available technologies, its high-cost Canadian reserves and others should have diminished both in quantity and value as oil prices dropped by more than 50 percent.
Exxon Mobil and its allies have consistently opposed raising or even maintaining the current level of gasoline fuel taxes and for more than 30 years have successfully kept the federal gas tax rate from rising although, as my earlier post[iv] showed, just restoring the federal gas tax to its inflation-adjusted 1993 level would be equivalent to a carbon tax on transportation fuels equal to the estimated damages due to carbon emissions. So why has Exxon apparently changed its position?
The most obvious possibility is that the company is speaking with a forked tongue, offering lip service publicly to a carbon tax while its lobbying team argues forcefully against it – an unfortunately common practice in Washington.
Another possibility is that Exxon Mobil, which knows energy markets and energy politics very well, is throwing support behind a carbon tax because it’s a policy approach that has little chance of being enacted. As recently as June 2016 every House Republican, including the entire leadership, as well as six Democrats, voted for a resolution opposing a carbon tax.[v] This makes it unlikely that a carbon tax proposal would even come to a vote any time soon, let alone be approved. Maybe the company thinks that by supporting a policy that will not be adopted, it can create further delay while simultaneously improving its image.
Yet another possibility is that Exxon Mobil believes that if there should ever be a serious movement to adopt a carbon tax, the company’s lobbyists could emasculate it behind closed legislative doors. The company has always been a powerful lobbying force and has had considerable success in preserving tax breaks for the oil and gas industry. One way to undermine a carbon tax would be to lobby for a low tax rate and then argue that climate policies favored by environmentalists had been enacted and the issue had been settled. The company and its allies might also work to prevent the tax rate from rising over time, as the oil lobby has done successfully to the federal gasoline tax for a quarter of a century. Like the gas tax, a carbon tax would then be eroded over time by inflation and become increasingly ineffectual. Economists know that to keep emissions falling, the carbon tax rate would have to rise continually for decades at an annual pace greater than the long-term interest rate, despite whatever political changes in Washington might occur. If Exxon Mobil could keep that from happening, it could continue to sell more fossil fuels.
Exxon Mobil also knows very well that gasoline sales are quite insensitive to price. In the short run, sales would drop no more than one half of one percent if gas prices should rise by 10 percent.[vi] Even in the long run, the drop would still be only about 3 percent. This means that a carbon tax, if adopted, could for the most part just be passed along to consumers and wouldn’t affect the company’s sales very much. The tax would largely be masked by the normal market fluctuations in gas prices. In any case, the slow response of sales to sustained price changes would mean that it would take years before policy makers would know for certain whether or not the tax was accomplishing its objectives. This would allow the company even more delay in which to operate.
In other words, of all the policy measures that might be adopted to reduce emissions from the transportation sector, Exxon Mobil might well have concluded that a carbon tax would be the least likely to harm its business. All this raises another question: Why does Exxon Mobil prefer a carbon tax to the alternative approach, a cap on emissions combined with permit trading? That approach has already proven itself effective in several states as a way of forcing emissions reductions in energy and industrial sectors, and the Clean Power Plan will encourage more states to adopt a cap-and-trade system as the mode of implementation. The answer is probably that a declining cap on emissions would force Exxon Mobil to keep cutting back on production and sales, whatever happens to the price at the pump. Then its massive oil reserves would be stranded and worth less and less.
Exxon Mobil is obviously thinking strategically. Concerned citizens and their representatives should do so as well.
[i] Richard Heede, Tracing Anthropogenic Carbon Dioxide and Methane Emissions to Fossil Fuel and Cement Producers, 1854-2010; Climatic Change (2014) 122:229–241
For related content, see:
BACK TO NEWS