Want to figure out how to stop climate change? Just ask Calgary-based Imperial Oil Ltd., which has ties to Exxon for more than a century. They figured out in the early 1990s.
The key to curbing emissions, the analysis found, is to put a tax on carbon. But the price needs to be high enough — the price per ton of carbon would have to be about C$55, or roughly C$95 ($72) in today’s money.
This is surprisingly similar to what leading economists are asking for today. Both theory and practice show that companies can’t be trusted to regulate their emissions in time, and the best way to force them to do so is to implement a tax on emissions.
This is a basic principle in economics. Whenever there is a negative externality resulting from the actions of a company, the company must pay to offset its negative effect. In this case, the entire planet is suffering because of emissions, so emissions can (and should) be treated as an externality. It’s not unique to emissions, and it’s not something groundbreaking — again, it’s a basic economic principle.
Nevertheless, the vast majority of world leaders want nothing to do with a carbon tax.
Imperial’s analysis made no mark when it was published. The company declined to comment and ExxonMobil, which owns 70% of Imperial, says it has supported economy-wide carbon pricing for a decade.
But that is highly questionable at best.
For starters, there is solid evidence that ExxonMobil knew about impending climate change and its effect back from the 70s. Not only did it hid its findings, but it also started a massive disinformation campaign to sow doubt about climate change.
Even today, Exxon (as well as other major fossil fuel companies) are actively participating in disinformation campaigns regarding climate change and its effects. In this light, the company’s position seems nothing more than posturing and greenwashing.
As for the carbon tax, it is still probably our best way to go about it. Perhaps a direct tax isn’t the best approach, but it is hard to envision the world taking the necessary steps without some form of a direct or indirect carbon tax. Yet we’re nowhere close to that.
According to Michael Greenstone, a University of Chicago economist who worked on the Obama era carbon-pricing policy, found that the global average carbon price is currently $2.48 — and this includes most countries, which have a $0 carbon tax.
The debate is still ongoing about what is the optimal price for such a tax, and what are the best mechanisms to implement it. Nevertheless, this seems to be the elephant in the room when attempting to deal with climate change. We’ve tried to do it without a tax and we’re not doing a particularly good job. Unfortunately, very little has changed, and carbon taxes are still wildly unpopular — but it’s the price we have to pay if we want to curb carbon emissions. Otherwise, there may be a much higher price to pay.