Dear Editor,
In December 2024 the talk was about windfall taxes, with the GoG adopting the firm position that there would be no windfall taxes. Now, in January 2025, we are greeted by renewed calls for the renegotiation of the PSA between the oil consortium and the GoG, with the latter adopting the firm position that it would not pursue this option.
For some time now, however, I have been talking about an “upstream carbon tax, at the wellhead (UTCW)” in Guyana, with possibilities that it may become the basis of a regional climate club adopted by Latin American and Caribbean countries that produce fossil fuels. In fact, Guyana can take the lead on this latter initiative at the upcoming COP 30 in Belem, Brazil.
The Government of Guyana (GoG) would earn about US$4 Billion annually with a daily production rate of 650,000 barrels of crude oil if an average carbon price of say US$40/tonne of CO2 equivalent were to be assumed. And in Guyana’s case, this could be a simple administrative charge levied by the Guyana EPA, requiring no new legislation or regulation. Indeed, the very same provision Section 4 (4) (a) Environmental Protection Act 1996 that was used to introduce a charge on excess flaring emissions in the Stabroek Block, is available for the introduction of this UCTW.
A key design element of carbon taxes – upstream or downstream – relates to the use of the revenues that would be raised by the tax. The general principle is that the revenues must be earmarked for activities that will not lead to a leakage, or an increase in CO2 emissions elsewhere; or may even reduce them further. In the case of the UCTW, the revenues ought to be thought of as self-generated climate finance, to be used for adaptation, and perhaps for loss and damage, and climate resilience; and also for immediately fulfilling the unconditional and conditional Nationally Determined Contributions (NDCs) made under the Paris Agreement. Moreover, this self-generated climate finance will be controlled and distributed in an institutional framework that would allow (developed) countries that have generated the emissions reductions to have no say in the use of the funds.
The importance and urgency of the UTCW has actually increased more recently on account of the unilateral decision by the EU to introduce its Carbon Border Adjustment Mechanism (CBAM). With about 66% of Guyana’s oil exports going to Europe, as reported recently by Reuters (https://oilprice.com/Latest-Energy-News/World-News/Guyanas-Crude-Oil-Exports-Surged-by-54-in-2024.html), Guyana must surely be thinking ahead about the time when crude oil will be added to the list of products that will attract the CBAM. PriceWaterhouse, in a January 2023 report titled “EU Carbon Border Adjustment Mechanism (CBAM) – what do businesses in the Middle East need to know?” has suggested that this will happen as early as 2030. All of Guyana’s exports, not only the share that belongs to Guyana (50% of profit oil), will be taxed if Guyana itself doesn’t have a carbon tax. Noteworthy is that Guyana, not ExxonMobil Guyana, will have to pay this unilaterally imposed CBAM when that time comes.
On this occasion, however, Guyana would have only itself to blame as it won’t be bad luck, it would be inaction on our part that leaves us wringing our hands. While we can do something about this now, as compared with what happened when the EU unilaterally ended preferential prices for sugar, it is however very likely that we won’t because Guyana is not a “learning society.”
Sincerely,
Thomas B. Singh
Director
University of Guyana GREEN
Institute
& Senior Lecturer
Department of Economics
University of Guyana
