Friday, January 9, 2009
This speech takes a leaf from Ken Cohen's playbook. I think that Cohen is honestly convinced that taxes are better and that cap-and-trade is too complicated. On the other hand, it certainly muddies the waters for quick passage of a climate change bill. And maybe that's the real point. The other strategic possibility is that oil companies are quick to suggest that their marginal costs of control are far higher than utilities. If so, since utilities will control first rather than pay the tax, the tax necessary to secure reductions from the utilities will be relatively low. So, the oil companies could pay the low tax and defer payment of the higher costs of control.
Also, as I frequently point out to my students, environmental taxes produce a downward pressure on the level of emission control to be achieved simply because they tax each unit, not just the undesired units, of pollution. That drives the cost of control through the roof and creates the downward political pressure. Additionally, there is always the uncertainty of what the marginal cost of control is and thus the amount of emission reduction that will be achieved.
The chief executive of Exxon Mobil Corp. for the first time called on Congress to enact a tax on greenhouse-gas emissions in order to fight global warming. In a speech in Washington, Rex Tillerson said that a tax was a "more direct, a more transparent and a more effective approach" to curtailing greenhouse gases than other plans popular in Congress and with the incoming Obama administration...
By backing [a carbon tax], Mr. Tillerson has become an unlikely member of a club that includes former Vice President Al Gore, consumer advocate Ralph Nader and President-elect Barack Obama's designated head of the National Economic Council, Larry Summers.
Carbon taxes have been politically unpopular. "Calling for a carbon tax could be a ploy because few observers believe such a tax is politically feasible in our Congress," says Daniel J. Weiss, a fellow at the Center for American Progress, a left-of-center think tank in Washington.
The leadership of the Democratic-led Congress and other major oil companies prefer using a cap-and-trade approach. Under this system, the government would establish economy-wide emission limits as well as limits for individual companies. There would be a market for firms to buy and sell pollution allowances based on whether they were above or below their caps. ConocoPhillips and the U.S. divisions of BP PLC and Royal Dutch Shell PLC have all supported a cap-and-trade solution.
Mr. Tillerson said a cap-and-trade system would be costly, bureaucratic and create a "Wall Street of emissions brokers." The speech signals an evolution in the thinking of Mr. Tillerson, who became chief executive and chairman of Texas-based Exxon, the world's largest Western oil company, in 2006. Mr. Tillerson now calls the issue complex and challenging to understand, but -- in contrast to Exxon's previous party line -- he doesn't question whether fossil fuel use has contributed to rising global temperatures.
Tillerson's certainly right about the transaction costs associated with a cap-and-trade system. This could be interesting.