Friday, 3 February 2017

Why is Big Oil now in favour of a carbon tax?

The idea of putting a price on CO2 emissions has been around for some time:
What’s a carbon tax?
Futures Forum: Climate change: carbon tax >>> "the polluter pays"

The EU has had a capping system in place for even longer:
Carbon tax or cap-and-trade? | Climate solutions | Climate change | Science & policy | Climate solutions | Issues
Futures Forum: Climate change: and carbon pricing >>> emissions trading isn't working

Australia's coal industry hasn't been exactly enthusiastic, as a piece from today's Guardian reminds us:
Coal lobby's long game puts talking points into leaders' mouths | Graham Readfearn | Environment | The Guardian

It's a politically touchy topic — the ousting of Malcolm Turnbull as opposition leader in 2009 and Kevin Rudd as prime minister in 2010 can both be attributed in part to positions on emissions trading schemes (ETS). It's also a topic with a long history. Former prime minister John Howard first floated the idea of an ETS in 2007.

Why is everyone talking about a carbon tax? The carbon pricing debate explained - ABC News (Australian Broadcasting Corporation)
Futures Forum: Peak Coal: the end of coal?
Futures Forum: "The disingenuous campaign to promote coal as the solution to energy poverty"

However, the Canadians seem keen - but this piece from yesterday's press questions the effectiveness of any such scheme:

Will carbon tax reduce fossil fuel use and greenhouse gas emissions?

Posted Feb. 2nd, 2017 by Grant Diamond

Canada is in the early stages of embarking on the grand experiment of carbon taxation. Such a tax would be levied on the carbon content of fuel. It is a form of carbon pricing.

A tax on greenhouse gas emissions can be levied by taxing the carbon content of fossil fuel at any point in the product cycle of the fuel. Last fall, the federal government announced it would require all provinces and territories to have some form of carbon pricing by 2018.

The argument is that putting a price on carbon emissions encourages individuals, businesses and industry to use less fossil fuel and therefore generate less greenhouse gas. It must be said that it is still too early to tell whether increased taxes will lead to reduced consumption because data isn’t available to support the conclusion. If taxes don’t succeed as planned, history tells us the individual taxpayer will absorb the impact through in-creased pricing.

How this lowers overall fossil fuel consumption is a bit of a mystery. Carbon taxes can offer a potentially cost-effective way to reduce greenhouse gas emissions if higher taxes do indeed lead to less consumption of fossil fuel. Unfortunately, carbon taxes can also be regressive in that they may directly or indirectly have a greater impact on low-income groups.

Many large users of carbon resources, such as the U.S., Russia and China, are resisting carbon taxation. Canada, in its desire to be an environmental leader, will impose taxes in a country of 35 million people when competitors in countries of 350 million and 1.5 billion people (the U.S. and China, respectively) will have no such burden.

Will carbon tax reduce fossil fuel use and greenhouse gas emissions? - The Western Producer

Interestingly, in Canada, Big Oil is behind the tax:

Industry and green groups are talking to Alberta's new government. Turns out they want the same thing

By Paul Haavardsrud, CBC News Posted: May 23, 2015

Big Oil is urging Alberta's new government to toughen up the province's environmental policies.

To hear an oil industry chieftain advocate for a carbon tax, as Suncor'sSteve Williams did in front of a downtown Calgary crowd on Friday, may feel incongruous, but consider who those comments were directed to — the NDP — and the situation takes on a tinge of the surreal.

It's the latest sign of how much the political landscape has shifted in Alberta, as well as the global discussion about climate change. 

"We think climate change is happening," 
Steve Williams, Suncor's chief executive, told reporters. "We think a broad-based carbon price is the right answer."

A Syncrude oilsands site near Fort McMurray is among the province's large emitters. (Kyle Bakx/CBC)

In backing the idea of a carbon tax, Suncor's Williams repeatedly noted that since 80 per cent of emissions come at the point of combustion, any strategy trying to take on climate change must include end users — people turning ignition switches and flipping on lights at home.

It's a message that puts the oilsands giant on the same page as green groups such as the Pembina Institute. Although aligned with the environmental lobby, however, Suncor has different stakes to consider.

Rare as it is for an oil company to call for a carbon tax, rarer still in this age of partisanship is hearing the oil industry, the environmental lobby and business groups sing from the same song book about the need for that tax.

"I think it is a good thing when we have messages across the room echoing the same thing," Amin Asadollahi, Pembina's director of oilsands research, said after speaking on the panel. "It should send a clear signal to politicians that industry and environmental groups are ready to move forward on a more effective policy. That's a good thing."

Big Oil to Rachel Notley: Bring on a carbon tax - Business - CBC News

Last week, BP's CEO was also calling for this type of action:

Carbon tax chances slim under Trump, though even Tillerson supports the idea

Bill Loveless, Special for USA TODAY

Jan. 29, 2017

With the Trump Administration poised to reverse U.S. policies on climate change, the head of a major oil and natural gas company is calling again for governments around the world to put a price on carbon emissions once and for all.

BP CEO Bob Dudley reiterated his company’s longstanding position in releasing its annual report on global energy trends. “In BP, we continue to believe that carbon pricing has an important part to play as it provides incentives for everyone — producers and consumers alike — to play their part,” Dudley said at a news conference in London last week.

As a matter of policy, BP doesn’t express a preference between the two leading options for pricing emissions: a carbon tax, versions of which have been adopted in Australia, Ireland, Sweden and other countries, or a cap-and-trade program, which China says it will apply to electric power and other industries this year.

“Our view is that putting a price on carbon will reduce emissions at a larger scale and at a lower cost than alternative policy measures, by reducing the demand for carbon-intensive products,” BP says on its web site. “We consider that this is fair — as long as the carbon price impacts all (greenhouse-gas) emitters equally — and we are keen to compete on this level playing field,” the company adds.

The message is a familiar one for BP and other major oil companies — among them ExxonMobil, Royal Dutch Shell and the Norwegian company Statoil — who favor carbon pricing as a means of addressing climate change. ExxonMobil, the U.S.-based oil giant whose acknowledgement of climate change has been called late and lacking by some states and environmentalists, says a carbon tax is “the most efficient means of reflecting the cost of carbon in all economic decisions.”

In fact, former ExxonMobil CEO Rex Tillerson, President Trump’s choice for U.S. secretary of state, acknowledged at his recent Senate confirmation hearing that a carbon tax could replace “the hodgepodge of approaches” by federal and state governments to reduce emissions.

Tillerson’s remarks at the Jan. 11 hearing brought to mind a speech he gave in 2009, when he began to promote the idea of a “revenue-neutral” carbon tax, with the proceeds returned to taxpayers through reductions in other levies. Such a fee, he told The Economic Club in Washington, “can be predictable, transparent, and comparatively simple to understand and implement.”

Carbon tax chances slim under Trump, though even Tillerson supports the idea

The Cato Institute smells a rat:

Why Big Oil Is Lobbying for a Carbon Tax

Daniel J. Mitchell

In one of my periodic attempts to create themes for these columns, I developed a “fiscal fights with friends” category.

Part I was a response to Riehan Salam’s well-meaning critique of the flat tax.
Part II was a response to a good-but-timid fiscal plan from folks at AEI.
Part III was a response to Jerry Taylor’s principled case for an energy tax.

And I’m going to retroactively categorize my friendly attacks on the destination-based cash-flow tax as Part IVa, Party IVb, and Part IVc.

Today’s column could be considered Part IIIb since I’m going to revisit the case against energy taxes. Except it’s not going to be a friendly assessment. That’s because there’s a legitimate case (made by Jerry) for a carbon tax, based on the notion that it could address an externality, obviate the need for command-and-control regulation, and provide revenue to finance pro-growth tax cuts.

But there’s also a distasteful argument for such a tax and it revolves around crony capitalists seeking to obtain unearned wealth by imposing costs on their competitors.

Elon Musk already is infamous for trying to put taxpayers on the hook for some of his grandiose schemes. Now, as reported by Bloomberg, he wants an energy tax on American consumers.

Tesla Motors Inc. founder Elon Musk is pressing the Trump administration to adopt a tax on carbon emissions, raising the issue directly with President Donald Trump and U.S. business leaders at a White House meeting Monday regarding manufacturing.

But what the article doesn’t mention is that such a tax would make his electric cars more financially attractive. It’s rather unseemly (and I’m bending over backwards for a charitable characterization) that a rich guy is pushing a tax on the rest of us as a way of lining his pockets.

What’s ironic, though, is that he’s probably being short-sighted because a carbon tax presumably would hit coal, and that’s a common source of energy for electrical generation. So while regular drivers would pay a lot more for gas, Tesla drivers would pay more at charging stations.

Some big oil companies also are flirting with an energy tax for cronyist reasons. An article in the Federalist notes that some of those firms support carbon taxes because they want to create hardships for their competitors.

…carbon taxes do not affect all fossil fuels equally. So just as some fossil fuels are much more carbon-intensive than others, here we can begin to understand how, beyond the benefits of predictability, a carbon tax might actually help some fossil-fuel providers… As a recent National Bureau of Economic Research working paper illustrates, for example, in the United States a tax on carbon would disproportionately impact the use of coal relative to natural gas for energy production. …Don’t be surprised, then, if some domestic producers of natural gas end up promoting a carbon tax, not only out of concern for regime stability but also out of a concern to make their product more competitive in the energy marketplace.

To be fair, I suppose that Musk and the energy companies might actually think energy taxes are a good idea, so their support may have nothing to do with self-interest.

But it’s always a good idea to “follow the money” when looking at how policy really gets made in Washington.

Even more depressing, the adoption of one bad policy may lead to the expansion of another bad policy. More specifically, some proponents of energy taxes admit that ordinary taxpayers and consumers will be hurt. But rather than realize that a new tax is a bad idea, they decide to match a tax increase with more spending. Here is a blurb from a report by the American Enterprise Institute.

Using emissions and other data from 2013 and 2014, we also find that the revenue from the carbon tax could be enough to expand the EITC to childless workers and hold other low income households harmless, combining a regressive tax with progressive benefits.

This is not good. The EITC already is the fastest-growing redistribution program in Washington. Making it even bigger would exacerbate the fiscal burden of the welfare state.

Republished from Dan Mitchell's blog.

Daniel J. Mitchell is a senior fellow at the Cato Institute who specializes in fiscal policy, particularly tax reform, international tax competition, and the economic burden of government spending. He also serves on the editorial board of the Cayman Financial Review.

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