By Sarah Kent and Justin Scheck
Several big oil companies have fallen into unlikely alignment
with environmental groups calling for new taxes on air polluters
like coal-burning power plants. One key reason: Those taxes are
probably good for their natural-gas businesses.visu
Energy giants including Royal Dutch Shell PLC and BP PLC hope a
so-called carbon tax--which would force companies to pay for their
emissions and likely increase oil producers' costs--also would
increase demand for natural gas, an increasingly significant part
of their output.
The companies are part of a collection of business interests,
environmental activists and economists that have urged negotiators
meeting at a U.N. climate-change summit in Paris over the next two
weeks to consider potential carbon pricing policies as a tool to
curb emissions. Such programs could open new markets in China and
elsewhere for gas to displace coal.
Most carbon-tax plans being discussed wouldn't much affect
transportation fuels that oil companies already sell, says the
Organization for Economic Cooperation and Development. Automobile
fuel is already heavily taxed in much of the world, while
coal-heavy power production often isn't.
"Coal," BP's chief economist, Spencer Dale, said in an October
speech, "is likely to be more affected by future climate policies
than either oil or gas."
The embrace of carbon taxes demonstrates how some oil companies
now see a business opportunity as efforts to enact climate-change
policies gain momentum. While not entirely new, oil companies have
become more vocal in their support for carbon taxes in recent
years.
Oil companies including BP, Shell and France's Total SA joined
forces in recent months to push for action on climate change,
calling for taxes to encourage the use of cleaner-burning gas over
coal. BP has said switching just 1% of world-wide power production
to gas from coal would have an equivalent emissions reduction as
increasing renewable-energy generation by 11%. Exxon Mobil Corp.
isn't part of the coalition, but in recent years it has expressed
support for a carbon tax, provided it is offset by tax reductions
elsewhere.
Their support for a carbon tax carries relatively little risk,
says Kurt Van Dender, the head of the tax and environment unit for
the Organization for Economic Cooperation and Development, a group
of first-world countries that includes the U.S. and Western
European nations.
Around 80% of carbon emissions in the U.S. and Europe come from
power plants and big industrial sources that largely use coal, he
said.
"The relative increase [in costs] will be much higher for these
non-oil types of energy," he said.
Coal producers say any financial incentives to reduce CO2
emissions should be directed toward the development of carbon
capture-and-storage, or CCS, technologies that force emissions into
underground reservoirs.
"Market mechanisms, including carbon pricing, should not impose
punitive costs but should instead provide revenues that can be
directed toward the deployment of low-emission technology,
including CCS," said a spokeswoman for the World Coal Association,
an advocacy group for coal producers.
Positioning "coal as the villain and gas as the solution" isn't
a productive long-term approach to curbing climate change, said
Daniel Litvin, managing director of Critical Resource, a
London-based resource-extraction consultancy. Shifting to natural
gas from coal is "pretty far off the major transformation that's
needed," he said. On Wednesday, his group said oil companies should
focus more on alternative energy and energy efficiency.
A global carbon tax is unlikely to emerge from the U.N. climate
summit, but any international commitment to reducing emissions
likely will result in individual countries implementing their own
version of pricing carbon.
The pro-carbon-tax talk hasn't taken oil companies out of the
sights of environmental groups and policy makers who want to reduce
fossil-fuel use. Shell this year faced protests in the U.S. for its
exploration of the Arctic offshore Alaska, which environmental
groups said could lead to pollution. Shell said it had taken all
necessary precautions but pulled out of the project in September
when drilling results were disappointing.
In November, the New York attorney general's office confirmed it
sent Exxon a subpoena for information on the company's research on
and response to climate change going back decades. The request
followed stories by InsideClimate News that detailed Exxon's 1970s
research into climate change and later support for groups that
questioned climate science. Exxon has said it didn't do anything
wrong.
Many environmentalists say the companies' support for a carbon
price won't be sufficient to prevent global temperatures rising by
dangerous amounts in the coming decades.
Greenpeace campaigner Charlie Kronick said he supports raising
the cost of fossil fuels, but he says a carbon tax alone isn't
enough to curb global warming, and could benefit the companies that
sell fossil fuels. It "absolutely will not do what we need to do,
which is dramatically reduce fossil fuels," he said.
Some oil companies, particularly in the U.S., remain suspicious
of regulation and taxes overall. In a speech in October in London,
Exxon Chief Executive Rex Tillerson pointedly noted that the U.S.
had curbed emissions with an increase in natural-gas usage for
electricity "in the absence of a comprehensive cost-of-carbon
policy."
Oil companies also oppose policies that would force a fast
switch to more reliance on renewable energy, saying the world's
energy needs are so great that fossil fuels will remain a part of
the picture for decades.
The carbon-tax push isn't oil companies' first foray into
promoting more environmentally friendly energy alternatives. In the
1990s, for instance, Shell and BP invested in solar energy and
other renewable sources, but they have scaled back many of those
investments, scrapping some altogether. A Shell spokesman said the
company is continuing with a "multibillion-dollar" investment in
biofuels.
Shell has produced more gas than oil on an annual basis since
2009. BP expects natural gas to make up about 60% of its total
production by the end of the decade and nearly 50% of Exxon's
production last year was gas.
Write to Sarah Kent at sarah.kent@wsj.com and Justin Scheck at
justin.scheck@wsj.com
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November 30, 2015 21:32 ET (02:32 GMT)
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