Coming Clean. How Big Oil Embraced a Price on Carbon

by Eric Ellman

In his keynote address at the fifth annual conference, Vice President of Communications for Shell Americas, Niel Golightly shared two scenarios for how his company sees our energy future unfolding.   In determining their role in either one, Shell assumes that future carbon emissions will effectively cost $40/ton, “preferably in the form of a cap-and-trade allowance”.  Shell is not alone in this. ConocoPhillips, Chevron and BP all agree on the need to price carbon.[1]  That they’ve held that position for years shouldn’t surprise anyone.  It’s stated on their websites, and they all long ago stopped supporting the principal producer of propaganda that questioned global warming.  After years of staunch opposition to the very idea of climate change, how did the super-majors end up reversing their public position?

In 1988, when the United Nations General Assembly endorsed creation of the Intergovernmental Panel on Climate Change (IPCC) the world’s biggest businesses took notice.  Within a year, corporations including Shell Oil, Exxon and British Petroleum launched the Global Climate Coalition (GCC) to oppose the idea of limiting greenhouse gas emissions. The GCC’s influence was profound but short-lived.  While they were influential in convincing the U.S. Senate to overwhelmingly reject the Kyoto Protocol in 1997, the coalition was already beginning to unravel.  That same year British Petroleum began re-branding itself as “Beyond Petroleum.” Royal Dutch Shell withdrew from the coalition, publically emphasizing their commitment to both “profits and principles”.  Both companies acknowledged the existence of climate change and joined fellow GCC founding members Ford and Dupont in leaving the organization.

In 2001, the IPCC issued their third assessment report and more companies headed for the door. But not Exxon.  Whereas their European competitors, Shell and BP, had bowed to growing consensus of the world’s scientists and consumer demand for responsible corporate behavior, Exxon held firm. They remained a member until the GCC closed in 2002, but not before convincing President George W. Bush, Jr. to replace Robert Watson, the chair of the Intergovernmental Panel on Climate Change.

Eventually even Exxon stopped denying the growing mountain of evidence that the globe is warming and that anthropogenic carbon is its primary cause. Today their website proclaims it “prudent to develop and implement strategies that address the risks to society associated with increasing GHG emissions.”   And taxing carbon – not even cap-and-trade, but an outright tax – is the strategy they advocate.  That’s right.  Exxon, one of the world’s biggest and most profitable companies, and until recently one of the most obstinate in its rejection of the existence of climate change, assumes a $60/ton tax on carbon pollution for their long-term business decisions.  Elsewhere in the industry, companies surveyed by the Carbon Disclosure Project report using an average value of $34/ton for the same in-house planning efforts.  Decades from now when such surcharges are universal, they reason they’ll have made the right long-range infrastructure bets to maintain corporate profitability. 

But companies needn’t wait that long to realize benefits from the practice, according to Shell’s Golightly, “the analysis forces a rigor that has its own rewards” he says.

It may come as a surprise how quickly the business community as a whole is adjusting to the idea of a need for a price on carbon. Three hundred and thirty four companies listed among the S&P 500 shared their emissions data in 2013, a critical first step towards discussions on what the price should be and how it should be assessed.

The relatively straight trajectory that the oil companies have travelled from denial to public acceptance is encouraging, and reminds us of the words of Mohandas Gandhi, “First they ignore you, then they laugh at you, then they fight you, then you win.”

[1] “Use of internal carbon price by companies as incentive and strategic planning tool”, Carbon Disclosure Project (2013)