Multinational carbon taxation needs to be executed carefully in order to manage the market value impact in the conventional energy sector.
Of the 190 countries that have ratified the Paris Accord will need to tax carbon in order to meet their goal of limiting global average temperature increase to below 2°C above pre-industrial levels and 1.5°C from current levels. Forty-two countries have a carbon taxation or emissions trading plan in place, and fifteen of the major countries that currently tax carbon (Australia, Chile, Costa Rica, Denmark, Finland, France, Iceland, Ireland, Japan, Mexico, Norway, South Africa, Sweden, Switzerland, and the UK) are doing so at a rate equivalent to 18% per barrel of oil. The number of countries and their level of carbon tax will increase as these countries are tasked with setting more ambitious targets every five years, developing national climate action plans, and establishing accountabilities for execution.
Carbon taxation will pose an existential threat to some conventional oil and gas companies, and significantly impact power producers. Even if there is a long ramp-up period, few oil & gas companies will be able to handle this level of tax without profoundly restructuring their operations and business portfolio.
Economically, the optimal solution would be to apply the tax quickly enough to incentivize diversification into renewables, but slowly enough to allow fossil fuel producers to adapt. The phase-in period, and the structuring of the tax, will need to be tailored to each region, country, and fuel.
Boston Strategies International’s unique knowledge of oil, gas and power costs at every step in the supply chain can help you evaluate alternative scenarios of operating and capital cost adaptation, as well as alternative structures and time-phasing of potential taxes and mandates that would generate the greatest benefit for your organization. We know how much tax can be passed through, how much cost can be shed, and how much synergy can be realized between various types of conventional and renewable power.
BSI is your best partner for adaptation advisory. We consult to the largest energy companies, lenders, law firms, government agencies and nongovernmental organizations. We have served national oil & gas companies including Saudi Aramco, PdVSA, and Gazprom; international oil & gas companies such as BP, Total, and American Energy; and power producers such as Vattenfall and Iberdrola. Our analytic tools have helped industry majors reduce cost by up to 30%. In addition, our Principals have written hallmark policy and methodological handbooks, including Optimal Supply Chain Management in Oil, Gas, and Power Generation (PennWell 2012); Guide to Supply Chain Management (The Economist 2009); and The High Cost of Low Prices (Business Expert Press, 2017), and we have been leaders in education at Boston University’s graduate school of business and training through numerous professional associations.