API Conditionally Backs Putting a Price on Carbon to Tackle Climate Change

The American Petroleum Institute on March 26 said for the first time it would conditionally support setting a price on carbon, a significant shift that underlines intensifying pressure on Washington and business to tackle the climate crisis.

But the devil will clearly be in the details. API CEO Mike Sommers, in a call with reporters, laid out a series of principles that must be met before API endorses a price on carbon. The announcement was part of a broader framework unveiled by the API that includes calling for direct regulation of methane, further cutting emissions from operations, expanded emissions transparency and reporting, reduced lifecycle emissions in the transportation sector and stepped-up federal spending on energy research.

After years of debate, API's support for "market-based" carbon pricing is part of an evolution by the group. API opposed the last serious effort to impose a price on carbon in 2010, but some of its largest members, including ExxonMobil and Chevron, have since publicly backed carbon pricing.

API said it would support "sensible legislation that prices carbon across all economic sectors while avoiding regulatory duplication.”

"Rather than a patchwork of federal and state regulations and mandates that could ineffectively address the climate challenge, an economywide carbon price policy is the most impactful and transparent way to achieve meaningful progress," Sommers said. "We think a market-based approach will lead to more emissions reduction than a heavy-handed government approach. We will advocate for this policy on Capitol Hill and within the administration.”

Sommers said the announcement was not a blanket support for any form of carbon pricing, nor was it supporting a specific proposal. API’s shift 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.

The energy industry is focused on meeting the "dual challenge" of supplying the world's energy needs – which the International Energy Agency says will increase 40% by 2050 – and meeting the demands of a growing population, Sommers said. The challenge is doing that while ensuring greenhouse gas emissions are lowered.

"What we're trying to put forward is a responsible middle ground that addresses the climate challenge head-on, in a serious and meaningful way," he remarked. "We know how big this challenge is."

Earlier in March, API representatives met with the Gina McCarthy, the Biden administration’s domestic climate adviser to discuss how companies could align with the administration's ambitious climate goals.

The administration intends to unveil a new economy-wide emissions reduction target for 2030 to comply with the Paris climate agreement by April 22, when Biden convenes world leaders on climate change.