Oil industry and climate activists agree on one solution: carbon tax

When it comes to action on climate change, few groups have less in common than the oil industry and climate activists.

Both groups, however, may find something to like in the same kind of climate policy: a carbon tax. On Monday, Rep. Carlos Curbelo (R-Fla.) released a carbon tax bill that has already gained supportive statements from these unusual bedfellows. What’s going on here?

{mosads}Columbia University’s Center for Global Energy Policy and partners from some of the country’s leading economic and energy think tanks and universities recently took a detailed look at how carbon tax would affect the U.S. economy, energy system, and environment.

In a series of four research papers released last week, we analyzed the effects of a federal carbon tax starting at $14, $50, or $73 per ton, through a hypothetical first decade of policy implementation. Last week, we released a separate analysis of the effects of Curbelo’s carbon tax proposal.

Several facts jumped out at us.

First, a carbon tax remains an extraordinarily cost-effective way to cut emissions. Emissions reductions can drive down greenhouse gas emissions well below U.S. commitments to the international community, with vanishingly small effects on the economy.

Economists like carbon taxes because they are efficient. They incentivize emissions reductions wherever and however they can be achieved at the lowest possible cost. Our analysis suggests that over the next decade, those low-cost opportunities are overwhelmingly found in a shift away from coal-fired power plants, which still produce over a quarter of our electricity.

In fact, the combination of the shale revolution and the remarkable progress of solar and wind means that a large-scale shift away from coal would be cheaper than ever.

It also means that the aggressive emissions reductions spurred by a carbon tax may be consistent with a flourishing oil and gas sector over the next decade.

Under a carbon tax starting at $50/ton, our analysis shows total oil and natural gas production would stay roughly flat over the next decade. But there is an important caveat: The price on carbon emissions from these sources would raise significant revenue and spur investments in lower-carbon alternatives.

Curbelo’s bill is more lenient on oil producers, repealing the federal excise taxes on gasoline and diesel, which would largely offset the price increases to these fuels caused by carbon tax.

Can climate advocates support a policy that largely leaves oil and gas producers untouched, even as they are responsible for nearly three-quarters of the country’s energy-related CO2 emissions? Can oil and natural gas producers support a policy that is designed to raise the price of their products and shift consumers to lower carbon alternatives?

Our analysis suggests that we may be in a rare moment when climate advocates and oil companies can find benefit in a common cause.

The United States is spinning its wheels on climate, with greenhouse gas emissions relatively flat over the next decade without additional action. A carbon tax that causes a radical shift in this emissions trajectory is appealing to most climate advocates, regardless of where the emissions reductions come from.

Meanwhile, oil and gas companies can see the writing on the wall. The risks of climate change on our human health, the economy and national security will increase over time. Paying little to nothing for carbon emissions is indefensible, and increasingly, these companies are getting pressure from their stakeholders and financiers to act. Supporting a carbon tax enables oil and gas companies to be part of a cost-effective climate solution that may not significantly harm their bottom lines over the next decade.

Climate advocates and oil companies make strange bedfellows, but history is filled with unlikely and short-lived alliances that formed to fight a common cause. After agreeing on a carbon tax, rest assured that climate advocates and oil companies would resume their battle against each other, with oil companies defending their business models and climate advocates pushing for additional ways to address near-term emissions from the country’s largest emissions source.

But both sides may be better off than they are today. 

Noah Kaufman is a research scholar and director of Carbon Tax Research Initiative at Columbia University Center on Global Energy Policy.