The Reason Behind Big Oil’s Change of Heart on Global Warming

Six energy giants want a worldwide price on carbon emissions—but what’s in it for them?

Shell CEO Ben van Beurden and five other oil firms are asking world leaders to set a price on carbon. (Photo: Benoit Tessier/Reuters)

Jun 3, 2015· 2 MIN READ
Emily J. Gertz is an associate editor for environment and wildlife at TakePart.

After years of opposing efforts to fight climate change, Europe’s biggest oil and gas corporations have made a stunning about-face.

In a letter addressed to the head of the United Nations Framework Convention on Climate Change, the chief executives of Shell, BP, and four other energy giants asked the world’s political leaders to put a price on carbon.

“We need governments across the world to provide us with clear, stable, long-term, ambitious policy frameworks,” reads the letter, which is addressed to Christiana Figueres, who leads the UNFCCC. “We believe that a price on carbon should be a key element of these frameworks.”

The absence of a global carbon price hinders rational business decision-making, the CEOs said in their letter. “Whatever we do to implement carbon pricing ourselves,” they wrote, “will not be sufficient or commercially sustainable unless national governments introduce carbon pricing even-handedly and eventually enable global linkage between national systems.

“Some economies have not yet taken this step, and this could create uncertainty about investment and disparities in the impact of policy on businesses.”

“It’s an important positive step,” said David Hawkins, director of climate programs at environmental group Natural Resources Defense Council. “They are basically acknowledging that we need to cut carbon emissions, including from the products that they sell: oil and gas.”

Related: In Florida, Officials Ban the Use of the Term 'Climate Change'

Around 60 percent of global emissions from burning gas, coal, and oil are priced to account for their contribution to climate change or illnesses caused by air pollution, according to Chris Davis of CERES, a nonprofit that advocates for sustainability leadership among businesses and investors.

Those emissions fall under the jurisdiction of a patchwork of regional, national, and international programs, such as Europe and California’s emissions trading markets.

“A carbon price incorporates those environmental and social costs into the cost of the products, such as the electricity,” said Davis. “In economist terms, you're internalizing the externalities: the adverse effects on society caused by the use of these fuels.”

In the U.S., several Eastern states participate in the Regional Greenhouse Gas Initiative, which has created a market where energy utilities purchase allowances for their greenhouse gas emissions from low- or no-carbon credit providers.

These market-based approaches, as opposed to regulations that simply set a limit on emissions, are thought to be economically efficient, Davis said, “because the entities that can reduce emissions most inexpensively will do it and sell the excess capacity.”

Setting that price, and setting it high enough to encourage investment in alternatives, is critical to averting the worst effects of global warming, Davis said. “It's the one thing that, if you send the right signals to companies, they're going to make rational economic decisions and cut their fossil fuel use,” as well as invest in new infrastructure and business ventures.

“That's why businesses and investors are lining up behind it. The current uncertainty makes planning pretty hard.”

Both Davis and Hawkins are encouraged by the statement of support for carbon pricing by the six European oil majors.

“I don’t think…they want to get away with something,” said Hawkins. “We should give them the benefit of the doubt at the moment. In the coming months we’ll see if they get more specific about what the price ought to be.”

Environmentalists have criticized Shell recently for pushing ahead with plans to drill for oil in the environmentally fragile Arctic Ocean. A coalition of green groups announced this week that it will sue the Obama administration for approving Shell’s Arctic Ocean plan.

Noticeably absent from the corporate push for a carbon price were U.S. oil behemoths Chevron and ExxonMobil.

“If those folks continue to obstruct climate action, they will continue to have an outsized influence on politics in the U.S.,” Hawkins said.

“Republicans and coal-state Democrats have largely come out against” any sort of price on carbon, Davis said. The letter to the U.N. “gives some additional impetus to getting carbon pricing into the international climate agreement. But ultimately it's up to national governments as to what they'll support in the agreement and what they'll do at home.”

So, Why Should You Care? Burning fossil fuels is the main cause of global warming. Scientists have warned that unless nations cut carbon dioxide emissions in half by 2050 and to zero by 2075, rising temperatures, sea levels, and other effects of climate change will become catastrophic.