Global oil majors call for pricing carbon

M Ramesh Chennai | Updated on January 24, 2018

Pricing of carbon — measures such as a carbon tax or the requirement to buy emission rights — makes anything that results in emission of carbon dioxide more expensive.

In what may sound like the devil reading the scripture, six global oil majors have called for pricing of carbon in a joint letter to the United Nations Framework Convention on Climate Change.

Pricing of carbon — measures such as a carbon tax or the requirement to buy emission rights —makes anything that results in emission of carbon dioxide more expensive.

Describing ‘climate change’ as a “critical challenge for our world”, the oil majors — BP, BG, Eni, Royal Dutch Shell, Statoil and Total — have said in the letter that they “stand ready to play our role”.

Calling upon governments to “provide us a clear, stable, long-term, ambitious policy framework” they stressed that “a price on carbon should be a key element of these frameworks”.

The letter, addressed to Christiana Figueres, the Executive Secretary of UNFCCC, notes that if governments brought in carbon pricing, it would “discourage high carbon options and encourage the most efficient ways of reducing emissions.”

Carbon pricing would, the letter points out, “reduce demand for the most carbon intensive fossil fuels.” Correspondingly, pricing carbon would increase investments in renewable energy, smart buildings, investments in carbon capture and storage and cleaner vehicles.

That oil companies should call for measures that would reduce the demand for their products has come as a surprise, but analysts have pointed out that their business interests would be more affected by uncertainty and lack of stable policies.

The letter itself explains what motivated the companies to call for carbon pricing. The companies recognise that the world is moving towards a low carbon future. “Low carbon business models and solutions are fragile until they reach critical size, but linked with carbon pricing, uncertainty would be reduced and such solutions would start to create value for business rapidly.”


The call for pricing carbon should be understood against the backdrop of the imperative to limit global warming to 2 degrees Celsius above the pre-industrialised levels (or the mid-19th century) — a target which is believed to be tough to meet given the current trajectory of emissions.

The earth has warmed 0.8 degrees above that base already and is now hottest in 800,000 years. Up to 2 degrees plus, things are manageable but beyond that climatic phenomenon such as floods, droughts, hurricanes, heat waves would be terrible.

In sync with the ‘2 degree’ target, there is a global call to stop producing fossil fuels. The ‘keep-it-in-the-ground’ campaign is gaining momentum, since scientists say that the target could be met only if 80 per cent of coal and oil in the ground are not produced.

Global carbon pricing

Some countries (Sweden, Mexico and some states of the US) have brought in carbon tax, while others (many in EU) have ‘emissions trading system’, where there is a ‘cap’ on allowed emissions, and if companies have no option but to emit more, they have to buy emission rights.


India has neither, but there the coal cess — Rs 100 on every tonne mined or imported — is a sort of a carbon tax. Besides, the Bureau of Energy Efficiency is bringing in the ‘perform, achieve, trade’, or PAT, system where companies that consume energy below a benchmark are given trade-able emission certificates. According to Ajay Mathur, Director-General, BEE, the first trades could happen in November.

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Published on June 04, 2015
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