Cronyism, Not Climate, Is Behind Big Oil’s Carbon Tax Change of Heart

Published June 8, 2015

Six of the largest oil companies in the world, all from outside the United States, have released a joint statement to the United Nations calling for governments to impose a global “price on carbon” by levying a tax or fee on the carbon dioxide emissions generated by power plants. Liberal groups have been fawning over the news, trumpeting that “Big Oil” has taken up the mantle of fighting climate change. Those groups are overlooking – or more likely intentionally ignoring – the fact this announcement is nothing more than classic cronyism, not a sudden concern for the climate.

It goes like this. Companies such as Dutch Royal Shell, Total S.A., and BP are producing more natural gas than oil. If governments around the world put a price on carbon dioxide emissions, the price of coal, which is currently a much cheaper source of energy than natural gas for most of the world, will skyrocket, because burning coal emits twice as much carbon dioxide as burning natural gas, meaning power plants that burn coal will be charged twice as much for their carbon dioxide emissions.

A tax on carbon dioxide emissions would cause power plants to switch from burning coal to burning natural gas, increasing the demand for the latter and thus increasing the profits companies such as Dutch Royal Shell, BP, and Total S.A. can rake in without having to compete with a more affordable energy source in the free marketplace.

Big Oil, or rather Big Gas, companies will be laughing all the way to the bank if carbon dioxide taxes are imposed on power plants, but electricity consumers will not. These consumers will be hit by a double-whammy, in fact. The initial switch from low-cost coal to higher-cost natural gas will raise the cost of electricity, and in the long run the cost of natural gas will increase dramatically because it will be in much higher demand across the continent.

Electricity prices are already skyrocketing in Germany, where the government has been aggressively promoting renewable energy through a system of expensive subsidies that have caused the cost of electricity to increase to more than four times the amount paid in the United States. These renewable-energy handouts, coupled with Germany’s systematic phase-out of the nation’s nuclear power plants, are a major reason why 300,000 German households a year have their power shut off because they cannot afford to pay their electricity bills. This number will only rise further if carbon taxes artificially increase the price of burning coal, which supplies Germany with approximately 45 percent of its electricity.

Although the major European natural gas producers are licking their chops at the prospect of higher gas prices in Europe, and the higher profits they’ll receive, this policy plays right into Russian President Vladimir Putin’s hand because Russia is the second-largest provider of natural gas to the European Union. Pricing coal out of the electricity market will make Europe more vulnerable to Putin’s habit of using energy exports as a means of getting what he wants.

Imposing an artificial price hike on carbon dioxide emissions in order to put coal plants out of business will do dramatic harm to everyone except Big Oil, raising prices for consumers and undermining Europe’s geopolitical leverage. Policymakers should reject the self-serving calls by Big Oil firms such as BG Group, BP, Eni S.p.A., Royal Dutch Shell, Statoil ASA, and Total S.A. to line their pockets by regulating their competition out of business.