The world’s largest oil-exporting countries have been asked to consider imposing a small carbon tax on oil as a way to break the deadlock over finance for poorer countries in the UN climate talks.
The Ecuador-led initiative, submitted to the Organisation of Petroleum Exporting Countries (Opec), could see a 3-5% tax levied on every barrel of oil exported to rich countries. This could potentially raise $40-60bn a year for the green climate fund, which is expected to be the principle route of funding for developing countries to adapt to climate change.
So what would actually be the incidence of this tax then?
It would be on the oil exporters. The countries themselves.
There is a market clearing price of oil. Whatever that is. OPEC produces a lot of the exports/imports, yes, but there’s also a lot of domestic production (and non-OPEC production) about the place. Oil is also fungible. Sure, there are a few differences about sweet and sour, heavy and light, there are transport costs. But essentially oil is oil.
So, we tax some part of the global supply but not another part of it. The market clearing price will stay exactly the same. The costs of drilling and lifting and transport and refining stay the same. Where’s the tax going to come from then? Obviously and clearly, from the state revenues from that oil. From the oil royalties earned by those OPEC countries.
All of which is fine of course. If Ecuador wishes to send money to other poor countries well, good on them. Similarly Saudi and so on. But note that this isn’t what they think they’re doing: they intend to impose this only on exports to rich countries. Thinking, presumably, that this will mean the incidence of the tax is on the rich countries.
But, as above, it ain’t. It comes out of the resource rents currently being collected by the petro-states. Nothing wrong with that at all of course. But it is going to come as something of a surprise to those politicians and their Chancellors when they realise this.