There is “no science” behind demands to phase out fossil fuels, according to the current COP president. This level of cynicism at the top of the annual climate summit makes it less surprising that the conference has also been used as an oil trading venue.
A record number of fossil fuel lobbyists gained access to the conference this year. So it seems to presage a bright future for fossil fuels, when it should be a venue to discuss how to stop using them.
But this is not the first time that the international climate agenda has been “hijiacked” by oil companies. In 2015, a few months before COP21 – the summit that lead to the Paris agreement, a comprehensive global agreement to reduce greenhouse gas emission by all countries in the world – six oil majors including BP, Shell and Total, wrote an open letter calling for a carbon tax on companies’ CO2 emissions. Under such a scheme, the more a company pollutes, the more it is taxed.
The oil majors suggested a two step approach. First, implement a carbon tax in all countries. And then – and this is where it gets complicated – they wanted all nations to get in a room and agree on the scheme. In their letter, the six oil majors said they wanted to “create an international framework that could eventually connect national systems”.
But carbon taxes are difficult to implement because of the international coordination they require to be effective. To make a carbon tax work, every country in the world would need to participate. Otherwise there would be what policymakers call carbon leakage.
This is when businesses simply transfer production to other countries with no – or more relaxed – emissions rules. If China started taxing its companies for the CO² they emit but the US refused, for example, it would be less competitive – its taxed products would be more expensive than those from the US.
Getting Russia, China and the US to agree on an international deal today seems near impossible. So any talk that advocates for an international carbon tax is cheap.
Oil majors as climate activists?
Some oil companies understand that public opinion on climate change is shifting and are starting to reflect this in their public actions. Exxon’s CEO, Darren Woods,urged then-US president Donald Trump to stay in the Paris agreement after Trump announced plans to withdraw the US in 2017. This decision was later reversed by Biden. Woods and Exxon also publicly advocate for a carbon tax.
As some of the world’s most polluting companies, oil producers surely have an interest in avoiding such taxes. But my recent research shows that 54% of oil and gas companies with a policy on carbon taxes support them (78% of the 50 largest firms by reserves). Among the 100 largest globally, I found 19 in favour of carbon taxes and 16 against them. 49 fossil fuel companies, mostly smaller operators, have no public position on the issue.
So why do oil companies support a carbon tax?
In June 2021, undercover interviews conducted by Greenpeace activists who posed as headhunters to interview a lobbyist for ExxonMobil, showed the lobbyist claiming to support a carbon tax because it would be politically impossible to implement.
The lobbyist concerned later apologised, saying he was embarrassed that he “allowed myself to fall for Greenpeace’s deception”. And ExxonMobil’s Woods condemned the statements made during the interview. He said they don’t “represent the company’s position” and that the lobbyist was never involved in developing corporate policy on the issue.
Nevertheless, that’s one theory for fossil fuel company support – if there’s no real risk of a carbon tax being implemented. It’s like supporting the introduction of CO²-eating unicorns to reduce atmospheric CO². The idea is beautiful but impractical.
One way around potential deadlock is to establish a carbon border tax. The EU wants to do this with its Carbon Border Adjustment Mechanism (CBAM). This would place a carbon tax on any goods produced abroad that have not already been taxed in their country of production – it’s essentially a customs tax for countries that refuse to implement a carbon tax.
This tax could be a solution, if the World Trade Organization (WTO) doesn’t deem it against free trade rules. It recently launched a taskforce to review the CBAM after some WTO members called it “protectionist”.
But while everyone waits for “unicorn” climate solutions to be implemented, major oil companies continue to profit and generate more emissions. For real change to happen, fossil fuel companies need to be encouraged to transition to cleaner energy using incentives, as well as stronger limits on fossil fuel extraction – an issue set to be top of the agenda during the last days of COP28.
This article was originally published in The Conversation on 8 December 2023. It can be accessed here: https://theconversation.com/from-the-paris-agreement-to-cop28-how-oil-and-gas-giants-try-to-influence-the-global-climate-agenda-219046
About the Author
Alain Naef is an economist focusing on climate finance, international macroeconomics and economic history. He obtained his PhD from the University of Cambridge followed by a postdoc at UC Berkeley. He has taught at Sciences Po, LSE, Warwick, Berkeley and Cambridge and at ESSEC his teaching focuses on macroeconomics and environment economics.