OPINION: As the world moves forward from the COP26 climate talks in Glasgow, securing wider adoption of a carbon price is necessary to speed up oil and gas companies' clean energy transitions — even though it is complicated.
The largest energy-consuming nations must step up — either with market-based mechanisms or a carbon tax that levies a cost for emitting greenhouse gases.
The need for a nationwide carbon price has received lip service in the US, but urgent action is needed now. Americans should look across the Atlantic for inspiration: The European Union is working to strengthen its established Emissions Trading Scheme.
Supermajors have publicly endorsed carbon pricing measures, but they know how controversial it is to impose costs that ultimately will be borne by consumers.
After a former ExxonMobil lobbyist suggested to fake headhunters from Greenpeace that the company’s public support for a carbon tax is only used as a talking point, ExxonMobil’s chief executive Darren Woods reiterated the company’s support for a carbon price.
“There is some resistance to a carbon tax,” Woods acknowledged in July. But he said, “Carbon pricing would send a clear signal through the market, creating incentives to reduce emissions, fostering investment in R&D to advance solutions and providing consumers with transparency to make the best choices.”
Meanwhile, the EU is toughening up its own scheme.
“Our experience in the European Union is that carbon pricing works,” European Commission President Ursula von der Leyen said in a speech on 2 November.
The EU introduced its Emissions Trading System (ETS) in 2005 on industry appliances, installations and power plants. Since then, it has reduced greenhouse gas emissions by 45% in the industrial and energy sectors covered by the ETS, Von der Leyen said.
The EU has introduced a detailed roadmap on how to reach its climate goals by 2030, strengthening the ETS on the existing energy and industry mix, and extending the system to the maritime sector. The EU will also build a new ETS on road transport, and heating and cooling in buildings, Von der Leyen said.
What's more, the bloc will introduce a Carbon Border Adjustment Mechanism (CBAM), “slowly but surely”, she said. This would tax imports into the EU based on their carbon footprint.
The CBAM plan is seen by many developing countries as a potential barrier to their development, however, so the EU should build trust by using part of the resulting income to facilitate climate transitions in other countries, said a European Council on Foreign Relations think tank commentary.
The EU says its adjustment mechanism would help to prevent so-called “carbon leakage”.
The need for a nationwide carbon price has received lip service in the US, but urgent action is needed now.
The US is adopting other ways to drive down costs for clean technologies, but it still needs to get serious about a carbon price.
A recent Brookings think tank web post said: “If the US continues to stand by while others move forward with carbon pricing, it risks hampering progress towards climate mitigation goals, reducing the global competitiveness of American companies, and diminishing the credibility of its commitment to climate issues on the global stage.”
Now it is time for President Joe Biden and Congress, with genuine support from US oil majors, to show some grit and get it done.
(This is an Upstream opinion article.)