International oil producers are bracing for carbon emission costs to soar to almost 10 times current prices in Europe, the world’s largest greenhouse gas market.
As governments around the world escalate efforts to curb climate change Exxon Mobil, the biggest energy company by market value, is planning future capital investments on the assumption that it will be required to pay US$60 a tonne for carbon emissions.
Bloomberg newsagency reports that’s the highest among 11 United States and European corporations that provided figures in a report just released by CDP, a non-profit that compiles environmental performance data for investors.
Royal Dutch Shell and BP are planning on US$40, and Total anticipates a carbon cost of US$34, according to the New York-based group formerly known as the Carbon Disclosure Project.
Those estimates compare to European Union carbon credits currently selling at €4.64, according to data compiled by Bloomberg.
Companies involved in extracting and processing hydrocarbons such as crude oil and natural gas must ensure that multibillion-dollar investments remain profitable for decades under even the strictest environmental rules, said Deborah Gordon, a senior associate at the Carnegie Endowment for International Peace’s energy and climate program.
“Nobody builds infrastructure that costs tens of billions of dollars to last for a five or 10-year lifespan,” said Ms Gordon, a former Chevron chemical engineer.
“These things are built to have 100-year lifetimes, so these companies have to think about what regulatory regimes will look like way beyond the next presidential election cycle.”
Oil producers and power generators are the biggest users of internal carbon price estimates for long-term planning among the companies that disclosed specific figures, CDP said.
Bloomberg reports Ameren, a St. Louis-based electricity and gas distributor, uses a US$30 carbon benchmark.
ConocoPhillips, the Houston oil explorer that spun off its refineries and chemical plants last year, employs carbon estimates that range from US$8 to US$46.
Exxon has been factoring future carbon costs into project planning since 2007, Alan Jeffers, a spokesman for the Texas-based company, said in an e-mail.
“Although climate policies remain uncertain today, for the purposes of our business planning we assume that governments will continue to gradually adopt a wide variety of more stringent policies to help stem greenhouse gas emissions,” he said.
Other companies plugging carbon costs into planning assumptions include Google and Walt Disney, according to CDP.
Google, the California-based online search provider, uses a US$14 benchmark while Disney ranges from US$10 to US$20, according to the report.
Oil and gas companies face “asymmetric risks” that regions currently without significant greenhouse-gas limits will impose costs or penalties in the future that may threaten the profitability of major capital investments such as offshore platforms or refineries, Guy Turner, chief economist at Bloomberg New Energy Finance in London, said in a telephone interview.
“We are in an incredibly uncertain environment right now with some countries going forward, some going back, so these companies are trying to future-proof their investments,” Mr Turner said.
“No one knows what’s going to happen with carbon policy over the next 10 or 20 years.”
Some countries are backtracking on climate-change policies, including Australia, which is debating legislation to repeal its carbon price laws.
Carbon emissions from burning fossil fuels are expected to set off a chain reaction of higher temperatures, rising seas and violent weather systems, Sanford C. Bernstein and Company said in a June note to clients.
Among energy producers, BP and Shell are among the most at risk because of the large fuel-producing plants they own in low-lying areas close to oceans, Sanford’s Oswald Clint, Rob West and Iain Pyle said in the note.
Sea levels may rise as much as two metres, swamping refineries, liquefied natural gas terminals, oil-tanker berths and even Shell’s Pearl gas-to-liquids plant in Qatar, which was built just one metre above sea level, the Sanford analysts wrote.
“Companies that have international operations are especially astute to carbon pricing as a response to the regulatory environments in which they operate, such as Europe or Australia, where GHG emissions reductions are mandatory and covered by mandatory cap-and-trade programs or carbon taxes,” the CDP said in its report.
