Several of the largest international oil companies, along with other major companies, are taking the prospect of international carbon pricing seriously. This is documented in a report released late last year by the New York-based non-profit group CDP, formerly known as the Carbon Disclosure Project.
A Bloomberg feature article based on this report says:
Such an attitudinal switch by ExxonMobil is all the more remarkable since, under a previous chief executive, the company had been a major source of finance in campaigns denying the findings of climate science.
Why are large companies preparing for a carbon cost?
According to CDP, many other surveyed oil and other companies are using a range of significant emission prices in their current long term investment planning.
Publication timing prevented the CDP report from noting the Abbott government’s intention to end the direct pricing of carbon emissions as its core approach to meeting national emission targets. It is an open question as to how much this policy reversal will delay the use of emission pricing in the long-term planning of Australian companies, petroleum and otherwise. A carbon price equivalent is implicit in any meaningful forms of ‘direct action’ should these eventuate.
Companies committed to a given stock of productive assets and experience have to make the best of their situation. They work within an evolving investment context which they can only partially shape. Among these possible ‘futures’ emission pricing cannot be ignored. As the Bloomberg article says:
How to tackle future emissions pricing
An International Energy Agency report released in June last year focused on measures to reduce emissions, and several of these are especially relevant to international oil companies.
First, major scope exists for large oil companies to cost-effectively reduce fugitive methane and CO2 and black carbon emissions from gas flaring. Resolution of this issue is vital to the ‘bridging role’ of natural gas in substitution for coal-based electricity.
Second, investment in petroleum resources and products can be reoriented away from carbon-intensive fuels such as heavy oil from tar-sands and toward natural gas. However, the IEA has warned that such a shift can in some circumstances obstruct necessary development of renewable sources of electricity. Hence "complementary policies" supportive of “new renewables” should be kept in place.
A third point underlined by the IEA is about eliminating oil product market distortions internationally. These distortions include inefficiently low excise taxes (as in the US) and big subsidies encouraging wasteful use of transport fuel, though this latter excess generally occurs in non-OECD countries outside the territorial range of privately owned major international oil companies.
Fourth, the IEA underlines major scope for cost-effective, emission-reducing improvements in fuel efficiency. For oil companies, such improvements offer cost-cutting opportunities within these firms’ processing and refining activities. But quantitatively, the most important savings are in end-use.
Of course, improved vehicle fuel efficiency has drawbacks for oil companies: their product markets will shrink (so-called ‘demand destruction’) as national vehicle fleets on average become more fuel-efficient over time. In the past, oil companies have squarely opposed such demand-side policies (tighter fuel efficiency standards or higher excise taxes) whether such policies were driven by climate or other considerations.
Fifth, promoting themselves as generic ‘energy sector’ companies, some oil companies have purported to ‘hedge’ by making research and investment decisions that appear to favour the development of renewable energy. However, as in the case of British Petroleum, at least some such moves have been notoriously tokenistic, exemplifying the process of ‘greenwashing’ and aimed mainly at presenting a 'clean' corporate image.
International oil companies may not be among the vanguard supporters of emission pricing. However, their reported use of emission pricing for internal and long-term planning purposes is a welcome sign that they recognise emerging climate policy realities.
Barry Naughten is a departmental visitor in the Centre of Arab and Islamic Studies at the Australian National University.
Barry Naughten does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.
This article was originally published at The Conversation. Read the original article here.
