Reversing U.S. Energy Tax Policies — The Right Choice?

US Senate Democrats have decided to take President Bush at his word and help implement ways to combat climate change. Their first act may well be to reverse energy tax policies that currently benefit major oil companies and shift them to renewable energies and biofuels.

By doing this, Democrats hope to shift America's focus from expanding domestic oil production to reducing global warming This is an admirable and laudable step, one that could put the US on the path to energy self-sufficiency.

The bill that is headed to the Senate Finance Committee on June 19th would move some US$ 14 billion from oil companies over the next 10 years to new incentives for solar power, wind power, ethanol and other renewable energy sources. It also aims to collect US$ 10 billion from oil companies that drill for oil and gas offshore in federal waters but do not pay royalties to the US government. While many believe that this tactic will reduce incentives for oil and gas companies to drill and explore domestically, and thereby increase America's dependence on foreign oil, the added incentives to find suitable domestic alternatives could eventually offset any such changes.

There is a distinct business case behind scaling up investment to fight global warming. As Bjorn Stigson, President of the World Business Council for Sustainable Development (WBCSD), the Geneva-based, leading business organization on sustainable development, says: "Governments are asking [business] two key questions on climate change. How far can business go on its own, based on normal operations and investments and how can governments facilitate and enhance further action and investment by business?"

Much of the challenge to fighting global warming rests upon finding ways to scale up public and private investment flows into new low- and zero-greenhouse gas (GHG) technologies and then rapidly deploying these technologies across the developed and developing world.

The investment climate for technologies such as wind, solar, biomass, hydropower and geothermal, which have good sustainability credentials, continues to improve and, depending upon local conditions, is becoming more competitive. However, more could be done to promote their development and deployment. A key way of doing this is through enhancing government subsidies to kick-start the process.

And once the ball is rolling, renewable energy companies will have the needed momentum to play evenly in the market. A number of the big oil and gas companies are also investing in renewables.

Mind you, subsidies are only one part of the equation. WBCSD members have been focusing for over a decade on these challenges and recognize the additional scaling up required now across several fronts. The private sector is the major source of capital and innovation that can efficiently transform the global energy system, drawing on business organizational ability. Yet business cannot develop and deploy the technologies needed on a large scale without help from government that goes beyond subsidies. International policy efforts must align with long-range business investment cycles. A broad and efficient mix of policies and programs targeted at mitigation and adaptation and backed by supportive regulation and governance frameworks will reduce investment uncertainty and assist business in its role.

Policy instruments developed to deal with energy and climate challenges therefore need to take account of a much larger set of systemic issues that are of interest to investors, companies, governments and consumers. The bulk of potential private capital available will probably remain uncommitted until definitive policies, which underpin a pragmatic approach, begin to emerge.

The WBCSD's Policy Directions to 2050: A business contribution to the dialogues on cooperative action details the WBCSD's views on the architecture of a future international framework putting forth four key policy priorities:

  1. A long-term goal: establishing by 2010 a quantifiable, 50-year goal for the management of global greenhouse gas (GHG) emissions with clear interim targets by governments in consultation with business, the scientific community and civil society. The goal should be used to establish short-, medium- and long-term global targets for absolute GHG reductions, acting as a guide to the establishment of robust programs at national and sector levels.
  2. Technology development and deployment framework: featuring expanded government support mechanisms for technological research and development (R&D;), global standards and new approaches to managing risk on new technology projects.
  3. Emissions management at national and sectoral level: a bottom-up approach that seeks to include all major emitting countries by aligning national energy policy with various domestic and sectoral opportunities to reduce emissions.
  4. A linkage framework to encourage international trading: national or sector programs must be able to link to evolving international GHG markets to introduce flexibility into the attainment of national or sector objectives and make use of expanded project based mechanisms.
"Perhaps we are beginning to see governments finally mustering up the political will to take the steps needed to establish a truly global and long-term approach on climate change," says Stigson.

The World Business Council for Sustainable Development (WBCSD) is a CEO-led, global association of some 190 companies dealing exclusively with business and sustainable development.

Reversing U.S. Energy Tax Policies — The Right Choice?
US Senate Democrats have decided to take President Bush at his word and help implement ways to combat climate change. Their first act may well be to reverse energy tax policies that currently benefit major oil companies and shift them to renewable