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Climate change isn't going to be free. A report by Point Carbon, an independent consulting company that tracks global carbon and energy markets, estimates that U.S. climate legislation could push the price at the pump 13 cents a gallon higher. The increase would result from the cost to oil companies for carbon permits, which they can pass along to consumers.
This is a much rosier view than that of the oil industry, however, which believes a U.S. cap-and-trade system would thrash demand for gasoline and lead to the shuttering of many refineries.
Legislation that narrowly passed the House of Representatives in June is currently being debated in the Senate and would require companies to hold carbon credits for their emissions. Emilie Mazzacurati, an analyst at Point Carbon, said this would lead to substantial costs, since few permits would be available to each company in the first years of the program. She continues that this wouldn't be too daunting for the oil companies, since they could pass along the cost to consumers.
At a price of $15 a ton for carbon, Point Carbon estimates an increased cost of 5%, which would translate to approximately 13 cents a gallon for the gasoline consumer. For Exxon Mobil Corp (NYSE: XOM), this would mean $5.9 billion in carbon permit expenses, of which it would be able to recoup all but approximately $277 million. This assumes that demand for gas wouldn't decline in the face of a 13-cent increase.
According to Mazzacurati, "They are just going to increase prices, which is going to allow them to recover the money they are spending buying (carbon) allowances."
Companies in the business of generating power, Point Carbon believes, could face greater constraints, since they don't have as much elbow room to increase prices, thanks to state legislation. Those that use low-carbon power sources, such as Exelon Corp (NYSE: EXC), on the other hand, could fare well. They have a competitive advantage relative to other power generators that would have to contend with tighter margins.
Exelon could see a 9% increase in revenue, according to the study, because it could take advantage of any price increases allowed for power while not having to purchase as many carbon permits.
So, we know that there's a downside. But, effective climate change programs have never been about preventing an initial cost. Rather, the goal is to make it either cost-neutral or advantageous. If the upside is an increase in jobs, more efficient vehicles or other cost-saving measures, 13 cents is something that can be handled.
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Reader Comments (Page 1 of 1)
11-03-2009 @ 9:29AM
FOXYLYNX said...
WHAT ABOUT THE COST OF EVERYTHING THAT IS TRANSPORTED, LIKE FOOD! WHAT ABOUT THE HIGHER HEATING AND COOLING COSTS FOR INDIVIDUAL HOMEOWNERS AND BUSINESSES? THIS IS GOING TO COST ALL THE WAY AROUND!
11-03-2009 @ 9:35AM
ij70 said...
I am so going to vote out any Dem. I can in the next elections. Dems, are you listening?
11-03-2009 @ 12:09PM
Fling said...
We can't turn back time we need to adapt. Take a look at this article The Great Transition: http://www.scribd.com/doc/21656220/The-Great-Transition-Navigating-Social-Economic-Ecological-Change-in-Turbulent-Times
11-04-2009 @ 5:34PM
elizabeth said...
It's silly to be passing new laws on emissions when the biggest and richest company, ExxonMobil, has all their old plants and infrastructure grandfathered and exempt from the Clean Air Act in the USA. It's the old stuff that is still running and leaking that creates huge volumes of emissions. I live on a 38,000 acre South Texas Ranch with ExxonMobil. They have leased the place since the 1930's -- it's still huffing and puffing away on old grandfathered plants. They not only pollute, they are wasteful. All the new production of ExxonMobil's JV partners requires that the partners process all the gas at ExxonMobil's 1950's King Ranch Plant -- another huge polluter. ExxonMobil leased almost 2,000,000 contiguous acres between Corpus Christi and the Rio Grande Valley by the 1940's -- they still control the area and use old junk. Regardless of new rules, XOM will be exempt. I made a website www.RanchoLosMalulos.com - you can see what a Texas XOM op looks like.
We need to make the biggest polluter that can afford to improve do so.
11-09-2009 @ 4:32PM
informed citizen said...
global warming is just a way to make money off the falling use of fossil fuels. wake up and learn some real science instead of relying on government "scientists"