Spotlight on upstream carbon dioxide emissions tax

Aug 15, 2020 Letters

DEAR EDITOR,

Now that a decision has been made to “put on hold the approval of the Payara off-shore oil project until a full review of it is undertaken by technical experts (“Peeping Tom,” August 13, 2020),” it is a good time to draw attention again to a University of Guyana GREEN Institute Policy Brief titled “Towards a Green-Petro State: A Carbon Tax at the Wellhead in Guyana as a Measure to Reduce Pollution,” written by Dr. Thomas B. Singh and Dr. Timothy Liang. Perhaps the authorities might use the space that has been created by the decision to solicit a full review of the Payara project, to consider the significant potential of an upstream tax on the carbon in each barrel of oil we produce.
An upstream tax on carbon dioxide emissions sequestered in the crude oil that is now being extracted in the Stabroek Block by Esso Exploration and Production Guyana Ltd. (EEPGL), is fundamentally a measure to reduce pollution. It is entirely consistent with the provisions of Section 4 (4) (a) of the Environmental Protection Act and also with the Production Sharing Agreement that was signed with EEPGL.
While there is an emerging global consensus that pricing carbon is essential for climate stabilisation, there is particular enthusiasm for the use of a carbon tax to achieve the stated objective of the Paris Agreement on Climate Change, to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels and [pursue] efforts to limit the temperature increase to 1.5°C above pre-industrial levels.” ExxonMobil itself supports the Paris Agreement and also the carbon tax as a serious emissions reduction strategy. Indeed, it has even donated US$1 million to support a carbon tax policy proposed by former US secretaries of state James Baker and George Schultz.
There are two principles, one physical and one economic, behind the upstream carbon tax proposal. The physical principle holds that a unit of fossil fuel will emit the same amount of carbon wherever and whenever it is burned. The economic principle that justifies the use of upstream carbon taxes is known as the “irrelevance of who pays” a tax on economic decisions, and it says that the incidence of a tax (i.e. who ‘really’ pays the tax) is unrelated to the point of collection of the tax. As such, an upstream carbon tax in Guyana will achieve the same emissions reduction results as at tax imposed at (say) the pump in the United States.
While the upstream carbon tax proposal is not merely about revenues, the authors pointed out that with a carbon tax of US$40/ton of CO2, Guyana stands to earn US3.4 billion annually if natural gas flaring was assumed to be 15 million cubic feet per day; and US$1.4 billion per annum rising to US$4.7 billion per annum by 2025 as oil production itself increases. The UGGI Policy Brief pointed out that the revenues raised from the carbon tax could be used to achieve Guyana’s energy-related Nationally Determined Contributions made under the Paris Agreement.
In the absence of an explicit depletion policy, the upstream carbon tax will reduce the incentive for oil companies to extract Guyana’s oil when price is low; and it will allow Guyana to get a bigger share of the oil rents than is now possible. Ironically, while Guyana has been unable to attract payment for the carbon sequestration services provided by its rainforests, the upstream carbon tax would enable it both to contribute to finding a climate change solution and to advance the case for ‘climate justice.”

Yours sincerely,
Thomas B. Singh

Editor’s Note: We wish to note that Guyana’s agreement with ExxonMobil for its operations in the Stabroek Block bears strict provisions denoting the revenue shares allotted to Government, ExxonMobil and its partners Hess and CNOOC. The contract has specifically been crafted to ensure that, if Guyana were to make any changes to alter its economics, the Government would have to repay the contractor(s) for any resulting losses.

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