A carbon tax on oil exports? What stupidity is this?

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.

8 thoughts on “A carbon tax on oil exports? What stupidity is this?”

  1. So Much For Subtlety

    Well don’t tell them. Let them go ahead and learn on their own.

    I see no downside to this at all. In fact if I knew the President of Ecuador’s e-mail address I would send him a letter about the three billion pounds that General Obacha left in a bank account in Switzerland …..

  2. If I understand this correctly doesn’t it also create a business opportunity of smuggling oil to a richer country while hiding the transfer or pretending it is a sale to a poor country? So that’s a new multi-billion $ opportunity for organised crime. And a large expensive bureaucracy trying unsuccessfully to prevent it.

  3. Assumingly if this was applied globally the incidence would be on the consumers though?

    The merits of taxation at source are that it’s hard(er) to evade. They worked that one out over 150 years ago when whisky production in Scotland was legalised.

  4. @JamesV
    No
    The OPEC producers are low-cost. So the marginal producer that determines the price (i.e. it shuts down when the well is due for servicing and doesn’t reopen if the price is too low) is a nodding donkey somewhere in the USA which is unaffected by the new tax.
    So the price to consumers is unchanged. All that happens is that a slice of OPEC revenue is paid to the new fund instead of OPEC governments.

  5. About these “rich countries”, we are talking about the ones with nuclear weapons, aircraft carriers and space programs, are we? The two most populous countries who will soon be the major carbon emitters of the world? Or are they still exempt from all things green?

  6. john77 is correct here. Alex is also correct, although it’s not so much a crime as an awesome development opportunity. My new oil refinery in Tanzania starts building the day this deal is signed.

    Runcie: stop being silly. Nukes and aircraft carriers cost squat – North Korea has the former despite being the starvingest example of how communism failed of a dozen beacons; India’s current one is one we sold them cos it was too old for us and it was in our interests for them to have one.

    China has a space programme and its own carriers that other powers didn’t build and don’t know, which is the important bit. But it’s making serious moves toward middle-income ($9k per head PPP) and takes squat in aid. If it’s let out of this programme, it’ll be because OPEC finds it amusing and lucrative to do so.

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