The EU is giving kid-glove treatment to Big Oil

The green transition is inevitable. If the needs of our warming climate wasn’t the only excuse, it’s now European law. 

One of the pillars  of the EU climate policy is the introduction of carbon markets for pretty much anything that pollutes. On top of the carbon markets for big industry, the EU institutions are discussing a system to apply a carbon price to cars and buildings. A new acronym was born to crown this mechanism: the ETS2, for Emissions Trading System 2 (number 2 because an emissions trading scheme already existed for the power sector, the manufacturing industry, and aviation).

In the new system, energy suppliers would buy polluting permits on the market, but the consumers would have to pay for the carbon cost in the final price. Common sense would dictate that those who pollute the most – historically but also today – should pay the most. This would mean that oil and gas companies should also shoulder the bill. But this logic doesn’t sit well with Brussels decision makers. The EU Commission did not see the injustice of asking small polluters – citizens – to pay a price for the emissions on their cars and homes, whilst giving kid-glove treatment to the big ones. 

The European Parliament, understanding the dilemma, put forward a proposal that sought to rectify the injustice. It proposed to evenly split the carbon price between oil majors and citizens, by requiring suppliers to absorb half of the cost passed onto citizens. In essence, consumers would still pay for their pollution, but sharing the carbon price cost with the fossil fuel suppliers would go some way to ensure a fairer distribution of the burden. In practice, if carbon prices were 50 euro per tonne of carbon dioxide (tCO2), the oil major and the consumer would each pay €25/tCO2 or ± 6 cts per litre of fuel.

In essence, the EU needs to set up an appropriate mechanism whereby energy companies pay their share for their pollution and don’t pass it on to citizens. So how would it work?

First, authorities should get access to the information on the various components making up the final fuel price. Energy companies don’t have the right to keep this information secret. Once authorities have access, they can monitor how the fuel price and its components fluctuate and thus check if fossil fuel suppliers are passing on a larger share of the carbon price than allowed. That’s not all. To ensure the system is even more transparent, citizens should be able to see in their bills how much they are paying for the carbon permits.

The Commission’s reply: this carbon cost split is too complicated. But did they even try to look into it? The only proposal they put on the table was one for annual reports about the ETS2 cost paid by consumers. It wasn’t clear what the report would be used for. 

And the Council in all of this? Passive at best. No government is showing the hint of courage with big, polluting companies. 

The oil majors reaped nearly €2 trillion in profits in the last 30 years. In 2021 the top 5 energy companies made profits for €56 billion and are on track to close 2022 cashing out €127 billion euro or additional 82 billion compared to 2019. And yet it is deemed too complicated to make a minuscule dent in these profits, by asking said companies to absorb part of a carbon price. 

The story may seem familiar. Brussels is currently tearing itself apart when trying to set a cap on the price paid for gas and oil while energy prices are sky-rocketing for families. The idea of a windfall tax on energy companies’ extraordinary war time profits has been flaunted by the EU,  but its revenues won’t even hit the expected €25 billion. This is even more scandalous when energy companies benefit from €30 billion in taxpayer-funded cuts to fuel duty .

At this rate, the EU Commission is being dwarfed by Big Oil’s power. We need a  change of direction. All it takes is the courage to adopt the rules and the procedures that make Big Oil contribute to social and climate challenges.