That oil and gas companies differ over political issues is nothing new and usually constructive. Sometimes, however, unanimity can be helpful. A looming decision on climate change presents such an occasion.
The question here is not whether response is in order. Political realities make that question moot. A response will happen, probably soon. It probably will cap emissions of greenhouse gases and allow trading of emission allowances. Some oil and gas companies, aligning themselves with President Barack Obama and congressional leaders, favor that structure. Others prefer a direct tax on carbon emissions.
Companies in the latter camp are right. Others should join them, even if doing so requires reversals of stated positions.
The appeal
The cap-and-trade approach has two characteristics that appeal to the companies that support it. Unlike a carbon tax, it starts with a specific target for emission cuts. And it uses market mechanisms for the trading of emissions allowances.
This page has long argued that reasons to favor a cap-and-trade system look better in theory than they can be in practice (OGJ, Dec. 15, 2003, p. 17). While a numerical objective has the buttoned-down feel of scientific management, any target with reasonable hope for enactment would be irrelevant to the real goal, which is to ameliorate atmospheric warming. The staunchest supporters of aggressive warming responses concede that all cuts under discussion can have, at best, minuscule effect on global average temperature and that the real hope is simply to take a first step. A carbon tax can achieve that.
Furthermore, any resemblance cap-and-trade frameworks bear to genuine markets ends with the word “trade.” The government will strongly influence if not set prices of emission allowances. It will determine key trading conditions, such as the banking of allowances and the availability and geographic extent of emission offsets. The supposed market for emission allowances thus will be a creature of politics, eternally subject to influence-peddling and vulnerable to corruption.
The biggest problem with the cap-and-trade approach, however, is its dependence for support on political deceit. Like any other imposed reduction in emissions of greenhouse gases, cap-and-trade will raise the costs of using fossil energy. To have any effect, it must punish consumers enough to make them cut their use of fossil energy. Trading of emission allowances can’t dissipate the pain. A new study by Bryan Buckley and Sergey Mityakov of Clemson University examines seven assessments of the cap-and-trade legislation most like Obama’s proposal and concludes mitigation costs will be “huge.” Those inescapable costs, imposed by government, will have the effect—but not the appearance—of a tax.
Yet politicians make full use of the illusion that cap-and-trade means someone other than consumers bears the costs. Obama wrapped himself in this shameful camouflage when he promised not to raise income taxes by a “single dime” except on the wealthy in a budget proposal that assumes “climate revenues” through 2019 totaling $646 billion. This money won’t come from companies. It will come from consumers of fossil energy and of products that use fossil energy in their manufacture. It will hurt like any new tax.
Oil and gas companies should recoil from political witchcraft of this type. They should be their customers’ strongest advocates, and their customers need a clear view of what’s about to happen to them. Such a view can come only from a carbon tax.
Avoiding deception
The avoidance of deception should be compelling by itself. But oil and gas companies have a practical reason to do what’s right. Under any method of cutting greenhouse gas emissions, the costs to consumers of hydrocarbon energy must rise painfully. A carbon tax illuminates the source of the pain; cap-and-trade obscures it. If the reasons are obscure when emission abatement raises fuel prices, the oil industry will fall subject to a new round of public scorn, and politicians will exploit the tantrum to dodge their own responsibility.
It may be too late to prevent enactment of a cap-and-trade system. It’s not too late for the oil and gas industry to disengage from the fraud.
