Exxon: Why the volte face now?

"A carbon tax strikes me as a more direct, a more transparent and a more effective approach (of countering global warming)," reads like just another line from the ongoing carbon tax versus cap-and-trade debate, except that it comes from Rex Tillerson, the CEO of Exxon-Mobil, the largest oil company in the world. For decades Exxon – which Greenpeace has called Climate Criminal no.1 -- has denied the existence of man-made global warming and has poured millions into at least 124 organisations that lobby against the idea.

Tillerson's change of stance reflects the changing political landscape in the US, and the growing support for action on climate change. So Exxon doesn't want to be an obvious target. But why support a carbon tax, and not the more widely accepted cap and trade system, which awaits approval by the US Congress?

Nancy Pelosi, Speaker of the US House of Representatives, says she will not force the issue in the 111th Congress: "We won't go before we're ready." If the cap and trade bill is passed now, it could raise coal-fuelled energy prices by 15 to 30 per cent, says Ben Jones assistant professor at Kellogg's School of Management: a politically difficult decision in a recession year.

"A carbon tax is a political poison pill," said Kert Davies, a research director at Greenpeace. "No politician would propose something with the word tax in it. Being in favour of something makes Exxon look like it is being intellectual, but this threatens to derail the prevailing international discussion."

And it protects Tillerson's job as chairman. He was challenged by the founding family of Exxon, the Rockefellers, which didn't like his earlier rubbishing attitude towards climate change. Senator Jay Rockefeller was, coincidentally, recently named as head of the Senate's Committee on Commerce, Science and Transportation.

With this speech, Tillerson might also have been more effective in increasing the life span of his core business by extending the debate on the switch over to alternate fuels, which his rivals espoused as early as 2002, and have advertised heavily. Seven per cent of British Petroleum's annual investments (amounting to $1.5bn) are in alternate energy – that includes natural gas; the number for Royal Dutch Shell is estimated to be about 10 per cent of its operations.

Tillerson is not alone in supporting the carbon tax. "Giving away allowances (under cap and trade) means that the government won't get the revenue it could otherwise use directly to fund climate initiatives," says Janet Milne, lawyer and professor at Vermont Law School. "Based on our experience with the European carbon trading programme, the value of theses free allowances translates to increased company profits but we can't assume the savings will be passed onto to customers."

But others disagree that a carbon tax will be better. "A cap and trade system promotes broad international participation," says George Wagner, economist at the Environmental Defense Fund in New York. "Developing countries would most surely be net sellers in the global carbon market – because of low cost abatement opportunities and since they are likely to receive more generous emissions targets than industrialized nations."

Neetu Goel, research associate at The Energy and Resources Institute (TERI) agrees with Wagner that a cap and trade system is most plausible for a country like India, "It will take a while before controlling carbon emissions becomes serious business in India and when it does merging within a global cap and trade framework will be best suited," she points out. Tillerson may have just put a tiger in his company’s growth tank, and a cat among the pigeons as well.