Value in carbon pollution disposal fee
By John H. Reaves & Len Hering
With President Obama’s June directive that the Environmental Protection Agency draft regulations to reduce power plant emissions, industry might consider supporting a broader, more effective approach.
First, let’s acknowledge the reality of climate change. It’s manifesting everywhere (8-inch sea rise; ice caps and glaciers receding; warming, acidifying oceans; storms on steroids). Ninety-seven percent of climatologists conclude fossil fuels cause global warming, according to a study by Dr. James Powell of the National Science Board. Most oil and gas experts know these truths, as do our military and national security officials. The latter have expressed concerns that climate change will flood populated coastal areas, undermine food supplies, and cause mass migrations of refugees, all of which would destabilize the world. Climatologists say we are heading there without major greenhouse gas reductions.
Leaders in industry and government hold an awesome responsibility for our future. Will they rise to the occasion?
Several major oil companies have expressed concern about climate change and have embarked on developing renewable energy. Unfortunately, most have retrenched considerably because renewables are less profitable than fossil fuels, which don’t include the full cost of greenhouse gas pollution. We have a herculean problem, and profit margins cannot be the deciding factor. Industry can help by telling Congress climate change is serious and calling on lawmakers to level the field for clean energy with a fair price on carbon.
Most industry leaders believe greenhouse gas pollution should not be free. ExxonMobil’s CEO, Rex Tillerson, expressly supports a carbon tax. Expecting a price on carbon, many companies already discount the value of their reserves.
Here’s an option: Start adding a carbon pollution disposal fee to fossil fuels by roughly $15/ton each year (about 15 cents per gallon of gasoline). Everyone then has skin in the game. Economists and businesses like the predictability. The free market will innovate. Make the fee “revenue-neutral” — keep government hands off and return all fees to households to offset the burden. ExxonMobil supports a “revenue-neutral carbon tax mechanism.” Rebate fees to U.S. companies for exports to countries without the fee. Tack our fees on imports if the exporting nation lacks the same, compelling other countries to join.
The disposal fee is simple to implement: collect at the wellhead, mine, and port of entry. The fee will exponentially accelerate the development of non-carbon energy in the United States by making it more price-competitive. A disposal fee invites an orderly transition and would enhance our world competitiveness. Renewables are a tiny percentage of our current energy mix, but in 20 years they could be substantial, helping buffer price spikes in fossil fuels.
While some still attest climate has always changed, civilization was built in the past 10,000 years in relative climate calm, mostly in coastal areas. But today’s rate of warming of atmosphere and oceans is unprecedented. Most greenhouse gases last decades to centuries in the atmosphere. It is urgent we correct course and diversify before the stage is set too far. It will be impossible to adapt to upheavals that will occur with the major climate change predicted with business as usual. The common understanding that industry fuels lives to a better future is at odds with the slow-motion staging of major, intractable climate change that will prove disastrous to 7 billion-plus people.
It’s time to place strong policy into action. Like insurance, hedging risk and diversifying assets now are critical. What will it take for industry leaders to act courageously and make a real difference?
Industry’s expertise and scale can be a substantial part of the solution. Our military — already making major strides in reducing fossil fuel use — will be supportive. With a predictable, rising disposal fee, and removal of tax rules that incentivize fossil fuel development, clean energy will become more profitable and affordable.
While a disposal fee is not the only solution, it could be an integral piece. With consistent resolve and policies, today’s uneven puzzle can line up with broader world involvement in solutions. When investors know the future is in renewables, there will be breakthroughs we cannot imagine.
Reaves is a lawyer based in San Diego and was a founding director of the Citizens Climate Lobby. RADM Hering, retired from the Navy, is recognized for his efforts in sustainability and is currently the California Center for Sustainable Energy’s executive director.