Major producers building carbon pricing into future plans

  • An oil refinery in Rodeo, Calif., seen at sunset. Major oil producers such as BP, ConocoPhillips, ExxonMobil and Shell have expressed support toward carbon pricing mechanisms in recent years as a means to combat climate change. (Photo/File/AP)

The list of oil and gas companies with global influence that support some form of carbon pricing continues to grow.

Alaska’s “big three” producers — BP, ConocoPhillips and ExxonMobil — are all now a part of that group.

ExxonMobil announced in October that it would be donating $1 million to Americans for Carbon Dividends, a campaign led by former U.S. Sens. John Breaux, a Democrat, and Trent Lott, a Republican. ConocoPhillips doubled down on that donation in December with a $2 million pledge to Americans for Carbon Dividends over the next two years.

BP executives have been trumpeting the expression “dual challenge” for several years, referencing the company’s belief that worldwide energy production will need to continually increase at the same time global carbon emissions must be drastically reduced.

“In decades to come there needs to be 2.5 billion people lifted out of poverty and there’s going to be another 2 billion added to our planet, so there is a deep need for energy, and we need to do it better with less emissions,” BP Alaska President Janet Weiss said during a Jan. 18 speech at the Meet Alaska contractor trade show in Anchorage.

“At BP we strongly support the transition to a lower carbon economy and we have it tied to our larger business strategy,” Weiss added later.

BP estimates roughly 20 percent of the world’s greenhouse gas emissions are subject to some form of carbon pricing mechanism and expects two-thirds of its emissions will be in countries with some sort of emissions or carbon policy by next year.

As a result, the London-based oil major has instituted an internal carbon price of $40 per metric tonne of carbon dioxide on its operations in industrialized nations in order to “help anticipate greater regulatory requirements” on its greenhouse gas output, an official statement on the company’s carbon price says.

BP also supports the global carbon emissions reduction goals set out in the 2015 Paris Agreement.

ConocoPhillips now either incorporates a carbon price into the economic analyses it runs on all of its proposed projects or runs a sensitivity tests of its projects against likely future carbon pricing scenarios. Those evaluations are conducted based on existing regulations for projects in countries with carbon pricing already in place and similarly to BP are based on a cost of $40 per tonne for large projects in countries without a carbon tax, according to its climate change strategy.

Energy policy experts of all stripes acknowledge support for carbon pricing, or tax, mechanisms is gaining steam domestically and abroad, but where does that leave Alaska, with its oil-dependent economy and small population that burns a large amount of fossil fuels per capita compared to most other states primarily because of its cold climate?

According to the U.S. Energy Information Administration, in 2015 Alaska had the fourth highest level of energy-related carbon dioxide emissions per capita in the country behind Wyoming, North Dakota and West Virginia, states with high levels of coal consumption, cold winters, or both, an EIA report notes.

Speaking on background, leading officials with Alaska’s major producers said the companies’ support for carbon pricing initiatives comes from the belief that working towards a cleaner environment is a sound tenant of doing business, and something shareholders increasingly demand.

For simplicity’s sake, oil companies in support of carbon pricing almost unanimously favor a national policy in the U.S. over state-by-state systems and a global policy would be most ideal for the same reason.

Americans for Carbon Dividends is backing the Baker-Shultz plan spawned in part by former secretaries of State James Baker and George Shultz, who advocate for a slowly rising but revenue-neutral carbon tax that would be paid back to all citizens through a dividend. The Baker-Shultz concept also includes removing other carbon regulations subsequently deemed unnecessary and “border adjustments,” or fees levied on goods imported from countries without carbon pricing policies.

Alaska’s three oil majors are also members of the Climate Leadership Council, a group comprised of some of the world’s largest companies and environmental nonprofits that also backs the Baker-Shultz plan.

The Climate Leadership Council touts the national carbon dividend concept as “pro-environment, pro-growth, pro-jobs, pro-competitiveness, pro-business and pro-national security” and something that can be morphed to match the needs of other countries that have not already put a cost on carbon emissions.

The council contends its dividend plan is the most equitable carbon tax concept being debated because it would tax consumers based on their purchases — the more wealthy of which generally buy more goods and fuel and therefore contribute more to greenhouse gas emissions — but distribute the carbon tax-generated dividends equally.

Consequently, the dividends would most greatly benefit lower income individuals who are more likely to turn around and spend the money in the national economy, according to the council.

However, many Republicans argue the carbon dividend idea is not as “pro-everything” as the Climate Leadership Council claims.

David Banks, an executive with the American Council for Capital formation and former energy and environment policy advisor to President Donald Trump, said during the Jan. 18 conference that a carbon tax is not the answer and would simply lead to “carbon leakage,” where higher emitting business sectors move to jurisdictions without a carbon price.

Banks also questions the motives of oil companies backing such policies.

“You have activist shareholders who have hijacked the shareholder resolution process to achieve what they can’t get through legislation or regulation on climate,” he said. “They’re essentially working a backdoor process to force public companies to accept climate-related goals that may not be in the best interest of the average shareholder who simply wants the company to pursue measures that increase the value of the stock.”

Officials with the big companies working in Alaska dispute that accusation.

Robert Dillon, a conservative strategist and former Republican communications director for the Senate Energy and Natural Resources Committee, said in an interview that upstream energy companies can support a carbon tax because they can pass it through to end users.

Dillon also insists the cost of administering such a program would degrade its benefit. He and Banks both believe the money for dividends would ultimately be diverted to other needs, particularly in the era of no congressional earmarks.

“If oil and gas support for a carbon tax gains a critical mass of support in Congress it’s highly likely that it will be hijacked and used as a revenue stream to save something like Social Security,” Banks said.

He supports a blending of climate and international trade policies to favor lower carbon products, which would give advanced economies like the U.S. a competitive advantage because manufacturing and energy production practices here usually result in less carbon emissions than in developing nations.

The U.S. currently imports more “embodied carbon,” or carbon emitted from producing a given product, than it exports and that increases total U.S. carbon emissions by about 10 percent, according to Banks.

“There’s no question that U.S. (natural) gas would be more competitive than Russian gas in Europe if life-cycle emissions were taken into consideration,” Banks argues.

He and Dillon stressed that legitimate climate change solutions will be market-driven — such as lower cost natural gas displacing coal for electricity production — and government’s role is to invest in research and development of cleaner energy technologies while removing barriers to innovation.

Alaska actions

On the state level, Gov. Michael J. Dunleavy scrapped former Gov. Bill Walker’s Climate Action Leadership Team shortly after taking office and has repeatedly said the state overall is not a major carbon emitter on the national or global levels.

Therefore, the State of Alaska needs to focus on oil production and otherwise generating a strong economy that can allow it to invest in ways to adapt to a changing climate, such as relocating coastal communities threatened by erosion, according to Dunleavy.

The University of Alaska Anchorage Institute of Social and Economic Research recently published a report that estimates the consequences of a warmer climate will require the state to spend $340 million to $700 million per year in additional public infrastructure repairs and upgrades over the coming decades.

Renewable Energy Alaska Project Executive Director Chris Rose said in an interview that it’s understandable that the oil companies want a carbon tax implemented as broadly as possible and advocating for one now is a hedge against uncertainty, as he believes carbon pricing will eventually be commonplace.

However, that conflicts with the fact that new policies are almost always generated in states that act as policy laboratories, “incubators, if you will,” Rose said.

“If the oil companies want to wait for a national or international (carbon) policy I think they’ll be waiting for a long time,” he said, noting the oil industry lobbied against a carbon tax referendum in Washington state that was soundly defeated on the November ballot.

The root issue with carbon pollution, according to Rose, is it isn’t nearly as tangible as roadside garbage and therefore it’s harder to generate support for policies to curb it.

“The problem with carbon dioxide is it’s invisible and if people could see they’re polluting they’d look at id differently,” he said. “All of those costs of carbon are being externalized.”

Rose suggests a state carbon tax — as unlikely as it is in the near-term — could easily be implemented at the gas pump, for example, but the revenue could then be invested in economic activity inducing energy efficiency programs.

A carbon tax could support a state “green bank” that would act similarly to the Alaska Industrial Development and Export Authority, the state’s development bank, with a focus on renewable energy and efficiency investments.

“Energy efficiency is always the cheapest” way to reduce carbon emissions, Rose said, as evidenced by the Alaska Housing Finance Corp. home weatherization programs that have reduced participants home energy use by roughly 30 percent.

An Alaska green bank could use the tax revenue to leverage private investment in a revolving loan fund that wouldn’t rely on grant funding as state energy programs have in the past, Rose said.

The green bank would not only reduce energy costs — freeing individual and business capital for other uses — but it would also spur construction activity and help private banks become comfortable in lending for renewable energy or efficiency projects, according to Rose.

For its part, BP has started bringing carbon-pricing mechanisms to Alaska indirectly.

Last March, BP and Southeast Alaska Native regional corporation Sealaska Corp. announced that they had reached agreement on a carbon offset project in which Sealaska set aside 165,000 acres of carbon-absorbing forestland for at least 110 years to mitigate for BP’s carbon emissions in California, which has a carbon cap-and-trade program.

The finances of the deal remain confidential, but the Sealaska Native Alaska Forestry Project was issued 11 million carbon credit offsets by the California Air Resources Board for agreeing to not harvest the timber or otherwise develop the acreage, according to the company. Sealaska then sold those credits at a lesser price than it would cost BP to reduce its California carbon emissions below the state’s emissions cap.

A single credit equals one ton of carbon dioxide, according to Weiss.

It allows Sealaska to derive revenue from the land while preserving it for salmon and wildlife habitat and other traditional uses, according to the company.

Weiss said BP reached a similar deal with Ahtna Inc. last October that is the largest carbon forestry project in the country.

“These projects support sustainable future management and multi-use access to the forestland and create economic opportunities for the region,” she said. “They also incentivize verifiable and permanent emissions reductions in sectors of the economy that would otherwise not be incentivized to pursue such reductions.”

Ahtna declined to comment on its deal with BP, but Rose said the State of Alaska — with its roughly 100 million, mostly undeveloped acres — could play the role of a carbon banker by agreeing to set aside some of its forests or even coal prospects.

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Elwood Brehmer can be reached at [email protected].

Updated: 
01/22/2019 - 6:28pm

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