Kate Mackenzie The $64bn question about the climate bill

A report in Wednesday’s LA Times highlights a conundrum that’s been puzzling us since talk began of a gasoline tax being included in the climate bill that Senators Kerry, Graham and Lieberman are expected to introduce next week (our emphasis):

As negotiations build toward a scheduled unveiling of the bill next week, it’s still unclear whether major oil companies and their trade group, the American Petroleum Institute, will explicitly endorse the legislation or at least agree not to fund an ad campaign opposing it. Proponents of a climate bill say such backing would be a major coup.

Several reports have suggested that oil companies themselves would prefer a form of carbon tax to a cap-and-trade scheme, and the LA Times specifically mentions Shell, BP and ConocoPhillips. Those three companies had all been members of US-CAP, an alliance supporting cap-and-trade, until February, when BP and Conoco withdrew from the group.

So, why support a carbon tax now, when any attempt to price carbon is arguably on rather shaky ground? Consider the position of the oil industry’s peak group in the US and things look even more complicated.

The American Petroleum Institute’s president Jack Gerrard told Greenwire, when the possibility of an oil or gasoline tax first emerged last month, that the API supported a tax. But his reasons seemed to cover both the environmental benefits and the possibilities for criticising such a tax:

Gerard said that the carbon fee approach would yield net environmental benefits, while giving consumers the most transparent signal they can get about what the costs are from the program. Unlike the House bill’s cap-and-trade system, oil companies would pass through the costs with signs at the gas pump letting people know they’re paying more because of U.S. efforts to deal with climate change.

As Greenwire reported earlier this month, the API is running an advertising campaign featuring the slogan “Tell Washington to say no to energy industry taxes.” The organisation says it refers to plans by the Obama administration to wind back tax breaks for petroleum companies, but the group’s strident opposition to the Waxman-Markey bill last year does make us wonder.

On the other hand, it could be a genuine preference for a taxation system, which — as some economists and the odd environmentalist have pointed out — is potentially a better way of pricing carbon from a business point of view, because it gives more price certainty than a cap-and-trade system. Conoco’s chief executive Jim Mulva, for example, expanded on why he likes the sound of the new bill in comparison to Waxman-Markey recently in FT ES — and he gave other reasons for this, such as the earlier bill’s treatment of natural gas.

It’s notable that Exxon, the biggest oil company, was not listed as among those signalling support for a gasoline tax. Company chief executive Rex Tillerson has voiced a preference for a carbon tax. His calls have generated scepticism and arguments that a tax is easier to lobby against than cap-and-trade.

So much for the oil majors and the API. The views of stand-alone refiners, who have been enduring a much tougher operating environment than their integrated peers, are probably less ambivalent – the NY Times reported last week that refiner Valero has contributed $500,000 towards a ballot initiative against new Californian greenhouse gas regulations. Fellow refiner Tesoro had also contributed, the report said. Senator Graham last month said that a tax on motor fuels would be applied at the refinery level.

Related links:

Shell remains in climate action partnership as others withdraw - FT ES
Oh, so that’s why you want to tax gasoline – FT ES