BP Exec: We Need International Carbon Pricing

February 2, 2009

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At this week’s World Economic Forum, British Petroleum’s CEO Tony Hayward spoke out about the need for global carbon pricing.

Carbon pricing promotes clean energy by either requiring companies to pay an emissions tax – such as the one suggested by Exxon Mobil this month – or by using a carbon market system. With the market system (the more favored option) companies must purchase and redeem permits for every ton of emissions they create.

The European Union’s Emissions Trading Scheme (ETS), created in 2005, is the market example the rest of the world is watching to possibly evolve into a global program. Allowance permits are given to all companies; heavy polluters can then purchase the permits being sold by companies that have reached emissions goals.

However, the program has recently been criticized because too many companies are selling their permits to raise money, thus flooding the market and driving down prices. Lower prices benefit high polluters (e.g., oil companies) who can then forgo greener policies by purchasing cheap permits.

Part of the problem is the slowing economy that is causing less industrial activity and, in effect, less carbon is being produced. Permits were also initially handed out for free, so companies are selling them for pure profit. Officials worry that the simple solution – removing some of the excess permits – could cause the entire system to collapse because businesses will no longer have confidence in the market.

Still, the European Commission believes that a global pact is needed to create a world-wide carbon market. They hope to link to other systems by 2015. Many believe that changes to the current system could create an effective global carbon market.

Last week the EU said it might impose a a climate tax on greenhouse gases from 2013-2020 and use the money to help poor countries prepare for global warming.

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