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Energy Darwinism: The Case for a Level Playing Field

by John Brian Shannon | February 2, 2015

By now, we’re all aware of the threat to the well-being of life on this planet posed by our massive use of fossil fuels and the various ways we might attempt to reduce the rate of CO2 increase in our atmosphere.

The First Option: Economic Incentives to Lower Fossil Fuel Use

Disinvestment in Fossil Fuels (A) or Outright Elimination of Fossil Fuel Subsidies (B)

A) Divestment in fossil fuels is under discussion as one way to lower carbon emissions

The case for divestment generally flows along these lines; By making investment in fossil fuels seem unethical, investors will gradually move away from fossil fuels into other investments, leaving behind a smaller, but hardcore cohort of fossil fuel investors.

Resulting (in theory) in a gradual decline in the total global investment in fossil fuels, thereby lowering consumption and CO2 additions to the atmosphere. So the thinking goes.

It worked well in the case of tobacco, a few decades back. Over time, fewer people wanted their names or fund associated with the tobacco industry — so that the tobacco industry is now a shadow of its former self.

Interestingly, Solaris (a hybridized tobacco plant) is being grown and processed into biofuel to power South African Airways (SAA) jets. They expect all flights to be fully powered by tobacco biofuel within a few years, cutting their CO2 emissions in half. Read more about that here.

b) Another way to curtail carbon emissions is to completely remove fossil fuel subsidies from the equation

In 2014, the total global fossil fuel subsidy amounted to $548 billion dollars according to the IISD (International Institute for Sustainable Development) although it was projected to hit $600 billion before the oil price crash began in September. The global fossil fuel subsidy amount totalled $550 billion dollars in 2013. For 2012, it totalled $525 billion dollars. (These aren’t secret numbers, they’re easily viewed at the IEA and major news sites such as Reuters and Bloomberg)

Yes, removing those subsidies would do much to lower our carbon emissions as many oil and gas wells, pipelines, refineries and port facilities would suddenly become hugely uneconomic.

We don’t recognize them for the white elephants they are, because they are obscured by mountains of cash.

And there are powerful lobby groups dedicated to keeping those massive subsidies in place. Ergo, those subsidies likely aren’t going away, anytime soon.

The Second Option: Reducing our CO2 footprint via a carbon tax scheme

But for all of the talk… not much has happened.

The fossil fuel industry will spin this for decades, trying to get the world to come to contretemps on the *exact dollar amount* of fossil fuel damage to the environment. Long before any agreement is reached we will be as lobsters in a pot due to global warming.

And know that there are powerful lobby groups dedicated to keeping a carbon tax from ever seeing the light of day.

The Third Option: Levelling the Subsidy Playing Field

  • Continue fossil fuel subsidies at the same level – without any carbon tax.
  • Quickly ramp-up renewable energy subsidies to match existing fossil fuel subsidies.

Both divestment in fossil fuels and reducing fossil fuel subsidies attempt to lower our total CO2 emissions by (1) reducing fossil fuel industry revenues while (2) a carbon tax attempts to lower our total CO2 use/emissions by increasing spending for the fossil fuel industry

I prefer (3) a revenue-neutral and spending-neutral solution (from the oil company’s perspective) to lower our CO2 use/emissions.

So far, there are no (known) powerful fossil fuel lobby groups dedicated to preventing renewable energy from receiving the same annual subsidy levels as the fossil fuel industry.

Imagine how hypocritical the fossil fuel industry would look if it attempted to block renewable energy subsidies set to the same level as fossil fuel subsidies.

In 2014, renewable energy received 1/4 of the total global subsidy amount enjoyed by fossil fuel

Energy Darwinism - Global Energy Subsidies (2014, in billions USD)
Energy Darwinism – The Case for a Level Playing Field Subsidy Regime. Global Energy Subsidies 2014. (billions USD). Image courtesy of IISD.

Were governments to decide that renewable energy could receive the same global, annual subsidy as the fossil fuel industry, a number of things would begin to happen;

  • Say goodbye to high unemployment.
  • Say goodbye to the dirtiest fossil projects.
  • Immediate lowering of CO2 emissions.
  • Less imported foreign oil.
  • Cleaner air in cities.
  • Sharp decline in healthcare costs.
  • Democratization of energy through all socio-economic groups.

Summary

Even discounting the global externality cost of fossil fuel (which some commentators have placed at up to $2 trillion per year) the global, annual $548 billion fossil fuel subsidy promotes an unfair marketplace advantage.

But instead of punishing the fossil fuel industry for supplying us with reliable energy for decades (by taking away ‘their’ subsidies) or by placing on them the burden of a huge carbon tax (one that reflects the true cost of the fossil fuel externality) I suggest that we simply match the renewable energy subsidy to the fossil subsidy… and let both compete on a level playing field in the international marketplace.

Assuming a level playing field; May the best competitor win!

By matching renewable energy subsidies to fossil fuel subsidies, ‘Energy Darwinism’ will reward the better energy solution

My opinion is that renewable energy will win hands down and that we will exceed our clean air goals over time — and stop global warming in its tracks.

Not only that, but we will create hundreds of thousands of clean energy jobs and accrue other benefits during the transition to renewable energy. We will also lower healthcare spending, agricultural damage, and lower damage to steel and concrete infrastructure from acid rain.

In the best-case future: ‘Oil & Gas companies’ will simply become known as ‘Energy companies’

Such Energy Darwinism will reward investors that simply but profoundly migrate from fossil fuel energy stocks, to renewable energy stocks within the same energy company or group of energy companies.

At the advent of scheduled airline transportation nearly a century ago, the smart railway companies bought existing airlines (or created their own airlines) and kept their traditional investors and gained new ones.

Likewise, smart oil and gas companies, should now buy existing renewable energy companies (or create their own renewable energy companies) and keep their traditional investors and gain new ones.

Related Articles:

Walmart, Exxon, BP, and 25 Other Companies Put A Price On Carbon

by Guest Contributor Jeff Spross

Image Credit: Walmart image via vvoe / Shutterstock.com

Originally published on Climate Progress.

It turns out the White House and major American businesses may be converging on how to assess the damage greenhouse gas emissions do to the global climate.

According to a new report by the environmental data company CDP, in 2013 at least 29 companies either based or operating in the United States factored a price on carbon into their long-term business planning. And in 2010, the Obama Administration released the government’s estimates for that same price, to be used as a factor in rulemaking decisions by federal agencies.

The global warming driven by human-caused carbon emissions will come various results, including droughts, floods, heat waves, shifting weather patterns, stronger storms, disrupted food supplies and rising seas. The purpose of the price in both instances is to quantify the economic costs of those effects.

Significantly, the companies using an internal carbon price include the five oil giants — ExxonMobil, ConocoPhillips, Chevron, BP, and Shell — along with other notables like Google, Microsoft, General Electric, Walt Disney, Wells Fargo, DuPont, and Delta Air Lines.

The specific prices they estimated were also striking: $40 per ton of carbon emissions for BP; $60 for ExxonMobil, and $40 for Shell. Xcel Energy pegged it at $20, Walt Disney at $10 to $20, and ConocoPhillips’ estimate ran anywhere from $8 to $46 depending on various factors. The U.S. government’s midline estimates were $37 and $57 for 2015. CDP also reviewed the carbon prices already in place in other countries around the world, which generally fell into the same range — and in a few instances much lower and higher.

Currently, the United States does not put any price on carbon. The International Monetary Fund estimates that failure effectively subsidizes fossil fuels to the tune of $502 billion annually — the biggest of any country in the world. The result is a massive market distortion, because the costs of climate change are not being factored into the daily decisions and transactions of everyone in the economy. The most direct way to place a price on carbon is either a carbon tax or a cap-and-trade system like the one Congress considered in 2009 and then abandoned. But the regulations to cut carbon emissions from power plants would implicitly, if not directly, place a price on those emissions as well.

Of course, the businesses’ use of an internal carbon price is an act of self-interest rather than advocacy. CMS Energy Corporation, for instance, noted it factored into its decision to start up a natural gas power plant, and to begin shuttering several coal-fired ones. And the CDP report quotes many of the companies emphasizing the price’s use as a guide in investment and other decisions.

“It’s climate change as a line item,” Tom Carnac, North American president of CDP, told the New York Times. “They’re looking at it from a rational perspective, making a profit. It drives internal decision-making.”

Publicly, some of these companies — ExxonMobil in particular — have been long-time skeptics of climate change, and have financially supported efforts to beat back the policies aimed at addressing it. Many of those companies are also regular contributors to the Republican party, which opposes efforts to cut greenhouse gas emissions and has sought to derail the White House’s carbon price. Consequently, many observers on both sides of the issue see the companies’ internal use of a carbon price as a significant break between business’ practical self-interest and the ideological position of the GOP and its conservative supporters — a sign the concrete financial infrastructure that supports opposition to climate policy is simply tiring out.

Across the financial world, there’s growing concern that massive amounts of money are invested in fossil fuel reserves that can never be exploited. Bloomberg LP recently released a financial tool to help investors calculate their carbon risk, while movements across the United States and other countries are pushing institutions to disentangle themselves from fossil fuel production. Various carbon-pricing mechanisms are already operating in numerous countries, and the growth of renewable energy continues to rocket upwards. In other words, the need to account for carbon emissions’ climate damage is no longer seen as a mere internal question of government policy — it’s taking on a collective life of its own.

Being hard-nosed business leaders, Exxon Mobil, BP, Google, and all the rest of them are simply acknowledging that reality.

This article, Walmart, Exxon, BP, Walt Disney, & 25 Other Top Companies Put A Price On Global Warming Pollution, is syndicated from Clean Technica and is posted here with permission.

Who Are The Big 5 In The Carbon Trade?

Originally published on Shrink That Footprint by Lindsay Wilson

When we talk about a country’s carbon emissions we generally only consider those that occur within its borders. But where does the fuel for those emissions come from? And where do the products a country makes go?

In this second part of our series The Carbon Trade we look at who the big traders of carbon are. We’ll analyze the major importers and exporters of fuels and products and in doing so explain much of how carbon moves around the world, both before and after its combustion.

Image courtesy of Shrink That Footprint.
Image courtesy of Shrink That Footprint.

The Regions Fueling the World

In the first piece of this series, The Globalization of Carbon, we noted that in 2007 traded carbon totaled 17.6 Gt CO2, or 60% of total carbon emissions. More than half of this traded carbon was in the form of fuels, in particular oil and gas.

The big exporters of fuel carbon are those regions and countries that produce more fossil fuels than they use at home.

Image courtesy of Shrink That Footprint.
Image courtesy of Shrink That Footprint.

The big five fuel exporters are the Middle East, Russia, Sub-Saharan Africa, North Africa and Australia. Together these five regions export 63% of carbon in traded fuels.

Indeed they are each so rich in fossil fuels in the form of oil, natural gas and coal that each of them export more carbon in fuels than they create through combusting fuels within their borders.

Each tonne of oil, natural gas or coal that is exported by these regions is imported somewhere else. So let’s see where they go.

Living On Foreign Fuel

It is widely known that the US is dependent on foreign oil, so much so they banned crude exports back in the seventies oil shocks. But the US isn’t the only region living off fossil fuels from other regions.

This fact is plain to see when we look at who the big importers of carbon in fuels are.

Image courtesy of Shrink That Footprint.
Image courtesy of Shrink That Footprint.

When taken together the countries that make up Europe (EU27) import more carbon in the form of fuels than the US. These two regions are the big fuel importers followed by Japan, China and South Korea, based on 2007 data.

Together these five regions import a staggering 71% of all carbon traded as fuels.

China is the World’s Factory

Now that we have seen how carbon is traded before it’s combusted, it is worth looking a how it is embodied in the trade of products after its combustion. For clarity’s sake products in this case means both goods and services though the former dominates.

In the last two decades exports of Chinese made products have exploded, driven on by cheap labour, capital controls and government subsidies. This phenomenon is plain to see in the data for carbon in exported products.’

Image courtesy of Shrink That Footprint.
Image courtesy of Shrink That Footprint.

In 2007 the carbon embodied in China’s exports of goods and services totalled 1,556 Mt CO2. About the same as the exports of the United States, Europe and Russia combined.

Although these five regions accounted for a healthy 58% of the trade of carbon embodied in products it is as a general rule less centralized than is the case for fuels.

Europe and the US Buy the World’s Stuff

If China is the big exporter of carbon embodied in products it will surprise few that the US and Europe are the big buyers.

Image courtesy of Shrink That Footprint.
Image courtesy of Shrink That Footprint.

In 2007 there was 1,514 Mt of carbon dioxide emissions embodied in European imports of goods and services, a quarter of which came from China. The US was the other major importer, followed by Japan, China and the Middle East.

The fact that so much European and American consumption is supported by emissions that occur in other parts of the world highlights the perils of focusing solely on terrestrial emissions for climate policy. The increased outsourcing of carbon intensive production to regions with weaker climate regulation risks undermining the effectiveness of national climate policies.

Such risks also exist regarding carbon in fuels. If factors reducing terrestrial emissions result in increased exports of fuels this can undermine the effectiveness of national action. The more than doubling of US coal exports since 2006 in reaction to the shale boom is a good example of this.

Join us for the final post in the series tomorrow when we Mind the Carbon Gap between country’s extraction, production and consumption totals.

All the data used in this series is based on the recent, and freely downloadable, paper ‘Climate policy and dependence on traded carbon‘ by Robbie Andrew, Steven Davis and Glen Peters. Many thanks to Robbie in particular for providing the data.

This article, Who Are The Big 5 In The Carbon Trade?, is syndicated from Clean Technica and is posted here with permission.

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