The Impossible Love of Fossil Fuel Companies for Carbon Taxes

Economists agree that carbon taxes are the most effective solution for climate change mitigation. But where do fossil fuel companies stand on carbon taxes? I analyse how the 100 largest oil and gas companies communicate on carbon taxes. Surprisingly, I find that 54% of companies who have a policy on carbon taxes support them (78% for the 50 largest). This is puzzling as an effective carbon tax should reduce revenues and reserve value of fossil fuel companies. I present a conceptual trilemma model showing that fossil fuel companies’ existence is threatened by a carbon tax. To understand this paradox, I offer non-mutually exclusive reasons why fossil fuel companies might support carbon taxes. Oil and gas companies could use a carbon tax to get rid of the competition from coal, create a level playing field and remove regulatory uncertainty. Or They think that these taxes will not affect them because demand for oil and gas is inelastic or that international coordination will fail and lead to leakages. Finally, it could be that this is simply a communication exercise and that a carbon tax helps them shift the responsibility from fossil fuel companies to customers, voters and elected officials.