Cap and Trade Rules
ExxonMobil CEO Urges CO2 Tax, Not Cap-And-Trade Law

January 8, 2009
By Ian Talley
Dow JoOnes Newswires
January 8, 2009

ExxonMobil (XOM) Chief Executive Rex Tillerson on
Thursday urged federal lawmakers to consider a "carbon tax" to reduce greenhouse
gas emissions instead of a cap-and-trade law such as the one Congress is drafting.

Marking a major milestone in the evolution of the oil firm's stance on the
climate change issue, Tillerson's policy call comes as Democratic leaders
prepare to move toward creating stringent cap-and-trade legislation.

"My greatest concern is that policy makers will attempt to mandate or ordain
solutions that are doomed to fail," such as a cap-and-trade system, Tillerson
said in a speech at the Woodrow Wilson Center here.

"A carbon tax would be a more direct, transparent and more effective approach, " he said.

A carbon tax is a straight fee for emissions while a cap-and-trade system
establishes economy-wide emission limits and a market for firms to buy and sell
pollution allowances based on whether they were above or below their cap.

Only a few years ago, Exxon was a major financial supporter of climate change
skeptics, though recently the firm's position had begun to recognize the
political reality in Washington as Democrats' power rose, and the company
started calling a carbon tax a more "reasonable" solution to cut emissions in
the economy. Tillerson's comments represent the first clear call by the CEO for
a price on carbon.

Exxon's public stance on a carbon tax comes as U.S. Rep. Ed Markey, D-Mass., one
of the strongest advocates for stringent climate change legislation and clean
energy legislation in Congress, is expected to be named chairman of the House
subcommittee responsible for drafting greenhouse gas laws.

The move - if ratified as expected later Thursday - will likely mean tougher
greenhouse gas and clean energy policies out of the Energy and Commerce
Committee than industry had forecast before a major shake-up in the panel late
last year. Markey's play follows the successful November coup by Rep. Henry
Waxman, D-Calif., for the chairmanship of the full Energy and Commerce Committee
from more moderate Rep. John Dingell, D-Mich. It is widely believed to have been
approved by House Speaker Nancy Pelosi, D-Calif., who also backs tough cap-and- trade legislation.

Analysts say Markey in the post will help Waxman to more easily pass tough new
cap-and-trade legislation that would cut greenhouse gases sooner, faster and
across a wider spectrum of the economy than Dingell or Boucher would have
preferred. At one time, Dingell had proposed a carbon tax. By forcing lawmakers
and the public to quantify the economic impact of cutting greenhouse gases,
analysts said the veteran automaker advocate attempted to make it less
politically tenable to support stringent emissions reductions.

Tillerson said cap-and-trade systems "inevitably introduce unnecessary costs and
complexity that undercut their effectiveness," calling it ultimately a " stealth
tax." Taking advantage of the current economic crisis caused by a systemic
problem failure in the financial houses, the Exxon CEO also raised the specter
of more economic toil precipitated by a cap and trade. "This new Wall Street of
emission brokers will take the emphasis away from the goal of reducing carbon
emission and focus it's attention on price volatility," he said.

Tillerson said reductions and changes to other taxes, such as income or excise
policies, could offset the carbon tax on the economy.

Although widely encouraged by economists - including within the Congressional
Budget Office - who say it's a more efficient and direct approach to cutting
emissions, the carbon tax has been largely shunned by most lawmakers as it's
seen as politically unfeasible to pass. That may be why Exxon has joined the
ranks of other heavy carbon emitters calling for a carbon tax, as it would
reveal more transparently of the actual costs to the economy of putting a
premium on greenhouse gas emissions.

Rising energy prices and a stumbling economy are thought to have played the
biggest role in the embarrassing defeat of a climate change bill in the Senate
last year. Majority Leader Harry Reid, D-Nev., withdrew Sen. Barbara Boxer's
bill from floor consideration after it was clear that a majority of Senators
weren't going to support the estimated $7 trillion measure.

And the failing economy - along with a massive fight over how the income from
auctioning emission allowances will be re-distributed between industries - is
why many lawmakers have said final passage of climate change bill isn't likely this year.

Pressed by reporters to say what price level Tillerson thought carbon would need
to be taxed to activate emission cuts, the oil chief said it would take at least
$20 a ton. "It's a question of how much you think the economy is willing to take
and how aggressive you want to be," he said.


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