The American Petroleum Institute endorsed carbon pricing on Thursday, putting the weight of the largest U.S. oil and gas lobbying group behind what many economists consider to be the most efficient policy to combat climate change.
API’s support for the policy after years of resistance shows how pricing carbon, either through a tax or cap-and-trade program, has become the most palatable option for business groups despite its political unpopularity.
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The oil and gas industry is looking to demonstrate commitment to fighting climate change while fending off mandates and regulations that have become the preferred approaches of the Biden administration and most Democrats.
“The administration is talking about command and control approaches,” API CEO Mike Sommers told the Washington Examiner. “We want to enter into this debate on one of biggest issues of the day to pursue a more market-based approach.”
API’s new position is a clear shift from its previous stance and follows similar positioning by the U.S. Chamber of Commerce, which recently endorsed a “market-based approach” to accelerate emissions reductions across the economy, a term that generally means a carbon tax or cap-and-trade policy. Economists have long contended that a carbon tax is the simplest and most efficient way to address greenhouse gas emissions, since it would reorient the market to support clean energy without mandating it.
A carbon tax would apply a per-ton fee for large emitters such as power plants and refineries that would encourage energy producers to switch to cleaner alternatives if doing so would cost less than paying the tax. A carbon price, at least initially, could benefit natural gas by pricing coal out of the market.
“There is a recognition that a price signal through a market-based mechanism is the best way to incentivize investments in technology to continue to lower emissions and to address climate change,” Sommers said.
API has acknowledged in recent years that climate change is a problem that needs to be addressed. It has backed policies such as funding federal research and tax breaks for carbon capture technologies that can enable fossil fuel operators to continue to operate as long as they prevent their emissions from reaching the atmosphere.
But Sommers said that API and its members are facing pressure from shareholders and investors, and its own workers, to do more, and he made clear the group now supports a comprehensive federal policy to address climate change across the economy, not just a series of one-offs.
“When I came into API two years ago, we did not have a climate policy,” said Sommers, who was the chief of staff to former GOP House Speaker John Boehner. “This change was really driven by the membership.”
Along with its support for carbon pricing, API released a broader “climate action framework” Thursday.
The group said it will continue to advocate for funding to support clean energy technologies, including carbon capture and hydrogen, which is increasingly being viewed as a critical technology to curb emissions in the power and industrial sectors. Natural gas groups see an opportunity to use their pipeline infrastructure to transport hydrogen and generate electricity with it.
API also reiterated its shift announced in January to support the direct federal regulation of methane, a potent greenhouse gas, from new and existing oil and gas operations.
And it vowed to expand its guidance to member oil and gas companies on how to disclose their risks from climate change. The Biden administration’s Securities and Exchange Commission took a first step last week toward requiring public companies to disclose the risks they face from climate change and emissions reduction policies, so the oil and gas industry is looking to show that it is acting voluntarily.
But API’s shift on carbon pricing is the biggest development, although it remains to be seen whether the nod from the oil industry will persuade lawmakers to back the policy.
API is not endorsing a specific carbon pricing policy, leaving unanswered critical questions about how high a tax on companies should be and how to handle the revenue raised by it.
That’s intentional, Sommers said, because API wants to “provide flexibility to lawmakers as they develop these policies.”
Sommers said API won’t be lobbying for a carbon tax to be included as part of the Biden administration’s forthcoming infrastructure package, which is expected to feature major spending on clean energy.
“We would not support adding a price on carbon to a big infrastructure bill as a pay-for,” Sommers said. “We are not designing this to be some new flywheel for government spending. It is meant to address climate change.”
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Critics say the support of business groups for carbon pricing won’t spur a legislative breakthrough unless they pour lobbying money behind the policy.
“Time will tell if industry support is any more than the political theater of the moment,” said Ben Ratner, the senior director with the Environmental Defense Fund+Business. “It’s one thing to support a concept and quite another to support a bill.”
