Producer or Green House Reducer the oil industry needs to make a choice

Confronted with a sharp change of priorities in Washington, international oil executives are expressing an eagerness to work with President Obama to fashion new policies to tackle global warming.
Skip to next paragraph
Times Topics: Oil and Gasoline | Global Warming

At an industry conference here this week, the executives struck a conciliatory tone on how to limit the emissions that are contributing to climate change, with many of them sounding like budding conservationists as they stressed energy efficiency and the need to develop renewable fuels.

At the same time, they declared that the country would still need oil for a long time, and sought to persuade the new administration of the need for more drilling off the nation’s coasts.

On tackling global warming, a subject that has long divided the industry, some executives said they supported a tax on carbon, while others favored a trading system like the one adopted by Europe. Almost all of them seemed reconciled to the United States’ adopting some kind of climate policy, and said they were eager to work with the new administration to devise an effective energy strategy.

“President Obama comes to office with a strong commitment to tackle climate change,” said Tony Hayward, the chief executive of BP. “Suddenly the challenges many of us have been wrestling with for a long time – the importance of energy security in providing economic security, and tackling the issue of climate change in a way that is commercially viable – are center stage.”

During his election campaign, Mr. Obama frequently criticized big oil companies, expressed skepticism about offshore drilling, and pledged to try to replace hydrocarbons with more renewable fuels. He has made energy and environmental policy a cornerstone of both his national security and economic efforts.

The executives strongly urged the administration to open up the continental shelf for offshore drilling at the very time that the interior secretary, Ken Salazar, announced that the government would review and probably scale back the Bush administration’s plan to give oil and gas drillers new rights.

Exxon Mobil, which had long been skeptical of global warming, offered its own suggestions. One of the company’s top executives, Michael J. Dolan, said that Exxon would back a tax on carbon, while criticizing a so-called cap-and-trade approach.

Under the cap-and-trade formula, which has considerable momentum in Washington, the government would set a ceiling on how much carbon dioxide could be emitted into the atmosphere each year. It would then give or sell permits that companies would be allowed to trade to meet their limit. Emitting carbon dioxide at present involves no penalties in the United States, meaning that companies have little incentive to curb their pollution.

Mr. Dolan, a senior vice president at Exxon, said that a carbon tax would be simpler and less subject to manipulation than a trading system. “A carbon tax reduces policy risks for businesses and investors in a way that cap-and-trade schemes do not,” Mr. Dolan said during his address at the industry conference, organized by Cambridge Energy Research Associates, a consulting firm.

“In addition,” he said, “by reducing other taxes – such as income or excise taxes – we can make a carbon tax revenue-neutral and offset the impact of higher taxes on the economy.”

His European counterparts, meanwhile, offered a different approach, favoring the sort of cap-and-trade system that has already taken hold in Europe.

Jeroen van der Veer, chief executive of Royal Dutch Shell, said the key was to assign a cost to carbon. “I don’t lose any sleep if the United States or anyone else gets a carbon tax,” Mr. van der Veer said. “The world is helped by pricing carbon dioxide, whichever way you do it.”

A cap-and-trade system establishes a clear environmental goal by setting an upper limit on emissions, something a carbon tax does not necessarily do, he said. Meanwhile, the possibility of trading carbon permits provides companies with an economic incentive to invest in technologies that reduce emissions. He said that a cap-and-trade system had worked well in the United States for cutting the emissions that cause acid rain.

But he added that higher fuel taxes largely explain why European vehicles are far more efficient than American ones.

“Both can work, and even coexist,” he said. “They both price CO2,” or carbon dioxide.

Daniel Yergin, the chairman of Cambridge Energy Research and the organizer of the conference, said oil companies recognized that major policy changes were coming, and that they need to be a part of the debate.

“They are not arguing about basic philosophy anymore, but about practical steps,” he said. “We’re moving into a new era of policy making that will have very important and far-reaching implications for energy markets.”