Big Oil Should Pay for the US to Reach Net Zero
The cost of climate action must shift from taxpayers to fossil fuel producers, in other words, to those who profit from the products that pollute the air.
The Biden administration is spending billions of taxpayer dollars to reduce greenhouse gas emissions in order for the U.S. to achieve Net Zero emissions by 2050, an important goal, in the opinion of most climate scientists, for saving our planet.
As immense as this spending seems, it is only a small fraction of what will ultimately be required. If America is to achieve Net Zero without massive tax increases, the cost of climate action must shift from taxpayers to fossil fuel producers; in other words, to those who profit from the products that pollute the air. Government regulation is essential to make this happen.
ExxonMobil’s CEO recently said “the people who are generating the emissions need to be aware of and pay the price for that.” Unfortunately, he was pointing to consumers, not producers. These fossil fuel producers are actively avoiding paying the price for cleaning up these emissions.
Fossil fuel companies make tremendous profits off of products that cause GHG emissions and should be the ones to take responsibility for these emissions.
Let’s consider an example. Last month, the U.S. Department of Energy awarded $6 billion to support 33 projects aimed at reducing emissions. One of the largest awards, $332 million, was for an ExxonMobil project to reduce greenhouse gas (GHG) emissions at its Baytown, Texas, chemical plant by 2.5 million metric tons per year—a mere 0.04% of U.S. emissions. This award came after ExxonMobil warned the project might not continue due to unsatisfactory government incentives.
ExxonMobil’s net profit in 2023 was over $36 billion, more than 100 times the government award. Why does it need taxpayer funds to decarbonize? Can’t ExxonMobil reduce its emissions at its own expense as a cost of doing business? Fossil fuel companies make tremendous profits off of products that cause GHG emissions and should be the ones to take responsibility for these emissions. But the reality is they won’t unless they are required to do so.
With the Inflation Reduction Act (IRA), the government took the “carrot” approach: Give companies an incentive to act and hope that they’ll do the right thing. Some companies have been very complimentary of the IRA because it allows them to decarbonize at taxpayer expense. Their only complaint is that they want even larger incentives so they can make greater profits on their decarbonization investments. These companies now see the atmospheric carbon problems as opportunities, but they still want the U.S. taxpayer to pay for their new decarbonization business ventures.
It is time for the IRA’s carrots to be followed by a regulatory stick. If oil companies want to continue to produce fossil fuels, we should phase in a requirement that they address the emissions that result from their production and use. Companies that reduce emissions most cheaply will be more profitable than those who are less efficient, and this will accelerate the deployment of climate solutions. Oil companies will, of course, pass some of those costs on to their customers. This will prompt consumers to seek alternatives to fossil fuels and to use less—exactly what needs to happen if we are to achieve Net Zero emissions.
This regulatory approach is nothing new. When society needed gasoline to be produced without toxic lead, it was required by regulation and oil companies did it. The same thing happened when low sulfur fuels were required to reduce pollution. Companies spent billions to produce better fuels, and we have cleaner air and fewer deaths as a result. Similar regulations should, and must, be used to drive decarbonization.
This approach—requiring oil companies to decarbonize—should have supporters on both sides of the political aisle. It both improves the environment and reduces taxes—a win-win. The Big Oil lobby will be strongly opposed, just like they were to previous regulations. But in the end, they’ll do what needs to be done.
Oil companies like to talk about the and equation: Meeting society’s energy needs and reducing emissions. But there’s one more requirement they prefer not to discuss: doing it at their own expense. If they won’t do these three things at once, fossil fuel companies need to go the way of the dinosaurs. Our grandchildren will see their logos in museums and will be amazed that these giants were once so powerful that they were allowed to put our planet at risk.
