Dear Editor,
Windfall taxes on oil companies in the wake of booming oil prices seem to be getting high level attention, moreso even than the general call for “putting a price on carbon.’ On Sept. 20, 2022, the UN Chief in his address to the UN General Assembly called for a windfall tax on oil revenues to pay for the damage caused by oil. Similarly, on Nov. 3rd, 2022, Dr. Tulsi Dyal Singh told us in a letter to the SN, of a Time Magazine essay by the Barbados’ PM Mia Mottley echoing that call for windfall taxes.
Taxing oil companies’ windfall profits, earned fortuitously on account of the eruption of a war, might seem like a good idea now that ‘net-zero’ seems to be getting more elusive, and damages associated with greenhouse gas (GHG) emissions are piling up. But an alternative version of this very idea, known as a carbon tax, has already been implemented in Guyana, though in a limited way.
At the height of the flaring emissions in 2020, I had submitted a University of Guyana GREEN Institute (UGGI) Policy Brief to the EPA, pointing out that it was possible – even with the stability clause in the PSA – and desirable to introduce a “carbon tax” on the carbon sequestered in the crude oil extracted from the Stabroek Block or released during flaring. As we all know, the EPA in fact introduced an “excess flaring” emissions charge, levied on the amount of CO2 released during flaring, that yielded more than G$1B. The important take away from this is that, even though the carbon tax was levied on the limited base of “flaring emissions,” it ensured that Exxon accelerated its efforts to solve the problem with its gas compressor.
There are three things to note about the proposal for an Upstream Carbon Tax “at the Wellhead” (UCT-W) in Guyana, or better, in the Guyana-Suriname Basin. First, the UCT-W is not a tax on profits or even oil and gas, but it is a tax on the carbon in oil and gas. As the addition to global emissions will be the same whether the carbon is released in Guyana or when combusted by final users in (say) developed countries, Guyana can meaningfully contribute to the global net-zero goal by ensuring that we “put a price” of the carbon we export. The way taxes work guarantees that the UCT-W will have a mitigating effect (this is the second thing), and will therefore count as Guyana’s contribution to the “race to zero,” in the process generating for itself the climate finance (the third thing) it needs for climate adaptation.
While this self-generated climate finance can be used to help us adapt to effects of climate change, it may also allow us to create a Regional Climate Adaptation Fund that will address the many challenges faced by our CARICOM partners. The UCT-W would complement Guyana’s attempt to sell carbon offsets in the voluntary market, which anyway is now known to suffer from the very “lemons” problem that used-car markets were known for – that the price of our carbon offsets will necessarily be low because buyers are uncertain about the quality of credits traded on voluntary markets. Carbon taxation and carbon trading both have the effect of putting a price on carbon, and can exist side-by-side or in hybrid form.
The UTC-W provides us with a credible way of resolving the paradox facing Guyana of being both a carbon sink and a carbon exporter, and it could provide a nudge to carbon pricing the world over. But beyond this, Guyana may encounter a “carbon border adjustment mechanism (CBAM)” on its exports, unless the (Scope 1 and 2) emissions associated with our crude oil exports are taxed here. As a nation and a region, we must ask ourselves if the time hasn’t now come for us, acting on behalf of ourselves and the planet, to extend the base of our CO2 emissions charge from just (excess) flaring to the carbon sequestered in every barrel of oil we produce. I strongly believe that it has.
Sincerely,
Thomas B Singh (PhD)
Director (on Sabbatical)