'You will need a carbon price' - Macleans.ca

‘You will need a carbon price’


The Canadian president of Royal Dutch Shell says carbon capture and storage—in which the Harper government has invested heavily—won’t be successful unless a price is put on carbon.

A senior oil executive is urging federal and provincial governments to put a significant price on carbon dioxide to encourage the industry to reduce emissions even as it increases production and accesses new and growing markets. In an interview Monday, Royal Dutch Shell PLC’s Canadian president, Lorraine Mitchelmore, said the country needs to address what often appear to be the competing goals of improved environmental performance and greater output of oil and gas, and “carbon management” must be part of that approach … 

Ms. Mitchelmore said CCS technology won’t be widely adopted unless there is a price on carbon – either through a tax, a cap-and-trade system or regulations on emissions. “Right now it would need a real significant price, but we see that with the learning and the technology you bring to bear, we see that coming down. But you will need a carbon price,” Ms. Mitchelmore said in an interview from Charlottetown, where she had addressed the federal, provincial and territorial energy ministers.

Elizabeth May quips. The CEO of Royal Dutch Shell made similar comments to John Geddes in June.

Michael Vaughan points to an MIT study which recommends the United States adopt a carbon tax.

The MIT study found that taxing carbon at $20 a ton in the U.S. would generate $1.5-trillion in revenue in a 10-year period, which would reduce corporate and personal income taxes, maintain social services spending and reduce the deficit. “With the carbon tax there are virtually no serious trade-offs. Our analysis shows the overall economy improves, taxes are lower and pollution emissions are reduced,” said John M. Reilly, co-director of MIT’s Joint Program on the Science and Policy of Global Change. The study said the carbon tax would lower pollution by 20 per cent by 2050 and prevent oil imports from rising. It would also, most importantly, shift energy markets to clean technology.

Stephane Dion’s carbon tax proposal would have started at $10 per tonne and risen to $40 per tonne. Alberta’s carbon tax is $15 per tonne. British Columbia’s carbon tax is capped at $30 per tonne. The MIT proposal would start at $20 per tonne and rise four percent each year.


‘You will need a carbon price’

  1. So someone in the industry is clamouring for carbon pricing?! What a communist traitor! Sell out to the mainstream media! He didn’t build that I bet!

  2. Everyone is aware that this is going to happen….all we’ve done by following politicians who lied to us is waste time and look stupid. And our economy isn’t one bit better off for it either.

  3. ‘Immediately rejected by Joe Oliver’ – when is someone in the industry going to call him an idiot?

  4. Wow! Shocking that an industry that would benefit from carbon taxes…. is promoting carbon taxes. Of course it’ll only be consumers and small businesses that will feel the effects of any leftist-driven carbon taxation. Did anybody really believe that Shell was going to be AGAINST something that would allow it to charge more for it’s products?

    • So the oil industry has joined the left in order to screw us? Thank God Stephen Harper is here to save us from them.

      • No, the oil industry is doing what every industry does, promoting policies that will allow it to make more money. When a business supports a government policy, it’s pretty obvious as to what it’s motivations would be (at least to most people).

        • You’re not making any sense – did you even read what the ceo said?

    • What is the exact mechanism that would allow Shell to charge more for their products with a carbon tax in place? Why wouldn’t the oil companies just charge those higher prices today and pocket the extra profit?

      • Because, like every business, they’ll simply pass the cost of any more taxation on to consumers. They don’t charge for higher prices currently because the market won’t support higher prices.

        • Yes, absolutely Shell and the others will try (and basically succeed) to pass the cost of a carbon tax along to the end consumers.

          But the now higher price should tend to decrease consumption, at least a little bit, so ultimately volumes are down a bit, which should tend to cut into Shell’s revenue and therefore profit.

          Even if demand does not change one iota, Shell is no further ahead with the tax than without the tax; your originating comment suggested – to me at least – that the tax would raise the price which would allow Shell to charge more which would somehow be to Shell’s benefit…..

        • Oh, stand down, I see from a reply below, that your premise is that Shell’s “markup” is a % of revenue, not a fixed cost per litre, which then explains your theory.

          I’m of the opinion that the markup would not stay at the current percentage, but would instead stay at a fixed amount per litre – making the carbon tax revenue neutral at best for Shell.

          I also agree that the supply/demand relationship for gasoline is more inelastic than elastic, but demand also isn’t completely immune to price, and a permanent shift upwards (such as the shift that would come with a carbon tax) might be treated differently than the price increases that traditionally happen just ahead of long weekends.

    • Shocking. Rick Omen evidently did not take Economics 101 in school.

      1) The revenues from a carbon tax would not go to Shell.
      2) As the post-tax price rises, quantity of oil sold will fall. Unless Shell raises the pre-tax price per unit (and why would they?), a carbon tax would hurt Shell’s bottom line to the extent that oil demand falls.

      You’re welcome to respond provided you don’t respond with the second-most retarded thing I’ve heard all day (your initial post being the first thing)

      • 1) Who’s paying the tax to the government, if not Shell? Is every Canadian going to have to carry around a little Carbon Credit Card, and pay directly to the government every year? No, of course not. Shell will be expected to remit the large payments to the government, and thus the tax becomes a cost of doing business. This cost, and all associated costs and probably some mark up, will be passed on to consumers. It always has, always will. Unless you’re so clever you’d budget for a business without budgeting for taxes…?

        2) Perhaps if you had FINISHED economics 101, you’d understand that fossil fuels have a low price elasticity of demand. Hence, an increase in it’s price has little effect on demand. So Shell would end up making the same margin’s as before the carbon tax, but on higher revenue. In case that’s too complicated for you: 10% of $1000 > %10 of $100.

        Actually, on second thought maybe you need to get out of school and into the real world and see how businesses actually work.

        • 1) By that logic, the GST/HST and other sales taxes has been a cash cow for business. Ask any business owner if the HST helps their bottom line (answer: it doesn’t) And by that logic, businesses would have preferred a separate GST and PST since they could have got twice the markup. They prefer the HST.

          2) The consumer sees a higher price of fuel. Shell does not since they only get the pretax price. Shell gets the same price for oil, multiply by fewer barrels sold equals LESS revenue.

          Care to retort with the third most retarded thing I’ve heard all day?

  5. Possibly the first time I’ve disagreed with Elizabeth May. Because I don’t think this shows Harper not in the pocket of Big Oil, I think it shows Big Oil taking lessons from Harper on how to mislead the public.

    • How do you mean?

      • Obviously the Original Matlock is right below, and so it is just a PR stunt by Big Oil, who you may have noticed are not the most favoured of industries in public opinion right now. With Harper having their back guaranteed, there is no down side to being a gentler, kinder industry–when you don’t have to follow through.

        • My comments below aren’t intended any any commentary on carbon taxes or Big Oil. But when someone says something so contrary to basic economics (my field of study), I felt compelled to clarify the law of supply and demand.

          Everyone’s entitled to their own opinions. We’re not entitled to our own facts.

        • Negative, this is an industry that realizes it is in their own best interest to price Carbon. Most are cap and trade supporters, Exxon is a tax supporter. They know that the costs aren’t actually that high to them and if made Revenue neutral could potentially drop their overall tax burden (at the cost of coal fired power). They also know that they need to get into a carbon regime if they want to continue to do business in other nations that have one or they will face strange and arbitrary trade issues.

  6. The link to the Alberta carbon tax requires a Free Trial, in which I’m not interested.

    But last I heard the Alberta tax is does not apply to all emissions. It is intensity based and it is based on deviations from a baseline value, where the baseline value comes from your CO2 emissions just prior to implementation of the tax.

    So it is rather more modest than $15/tonne when averaged over total emissions.

    • Yes, but economic incentives work on the margins, not the “over all emissions average”. Is the price too low? Yes, is the coverage too small? Yes, but learn some economics.

      • Yeah, I get the basic of idea of margins, thanks.

        And I’m going to take you up on your “offer”, so to speak, to educate me. With the Alberta carbon tax system there is a $15/tonne economic incentive to eliminate that last tonne of CO2 emitted (the marginal tonne), but only while the intensity is above the target. Once a facility has reached or fallen below the intensity target, there is no longer an economic incentive of any sort to encourage further CO2 reductions. But if the tax applies to every tonne of CO2, then there is always an economic incentive to do better, no?

        Similarly, for an Alberta facility that is right at the intensity target, if it doubles its production and doubles its CO2 emissions there is no economic incentive to reduce CO2, whereas a system that applies the tax to every tonne creates that incentive, no?

        I am interested to find out if I’ve got that right or wrong, so point out my errors if you’re so inclined, thanks.

  7. Arrrrgh!

    Alberta’s carbon tax is $15 per tonne.

    It is $15/tonne on 12% of output, only for larger industrial emitters . $15/tonne on 12% = $1.80/tonne on 100%.

    • Is the 12% a fixed number, or is that the effective amount of emissions that have been taxed? (See my ‘formula’, above.)

      • I think you’ve basically got it right. The baseline for existing facilities was their average GHG intensity over the period of 2004-2006. Then 12% reduction target to set a new baseline. You pay $15/tonne on whatever you exceed on the new baseline.

        I’m not sure how they set the target for new facilities now, though. Is it a 12% reduction after you first go on production, or 12% below historical numbers for similar facilities? Problems with both approaches.

        • Right. I forgot that after establishing the baseline intensity value for a facility, that value does decrease over time. By now it makes sense that the intensity targets could be 12% lower than they were back in year 0 (2007). But I do believe that that decrease was implemented gradually over the last 5 years.

          Bottom line is that Alberta’s carbon tax is rather modest.

          • The idea being that all that matters is marginal pricing and in Alberta 80% of emissions are industrial.

            I agree that 12% is not enough, but the effects of 12% from baseline being taxable and 100% should be economically the same. If there are reductions to be made that cost less than the tax you make them, even beyond the 12% because you can sell those to others (as long as the price differential doesn’t get too big.) otherwise you pay. The cheapest improvements will be made first and at some point the price and maybe coverage goes up.

            The one issue I have is that the carbon price is both tax and royalty deductible so the actual carbon price depends heavily on what stage of development a project is in and what the oil price is at.

            I prefer a pure tax, one price on all measurable carbon emissions. It also might as well go to general revenues (or at least 80%) then income taxes can be reduced and the average emitter pays nothing (or very little) extra, the low emitter actually makes money and the high emitters pay more. That’s how you give an incentive.

          • Yes, I think. The questions I posed to you, above, might still be in play though. Thoughts?

            Is it the case that credits can be bought/sold in Alberta? Not disputing, just wasn’t aware (ie I’ve not heard of it happening).

          • Addendum, wrt going beyond a facility target:

            IF you can sell credits (ie someone else needs them at all, and then is willing to pay for them) THEN a facility that is already at its own target would be incented to reduce beyond their own target….that makes sense.

            And with that it all comes back to the price. Thanks!

  8. One economist suggests there is no desire for carbon pricing, so the top politician in Canada shouldn’t be blamed.

    I bet the same type of thinking is why our health care costs are going through the roof. Why eat properly and exercise when you can just live slavishly for years, and go under the knife when things eventually catch up with your wrinkly shrivelled body?