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A Carbon Tax Would Be Good for the E&P Industry

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A few weeks ago, a very passionate discussion took place within the SPE reservoir online community about climate change and global warming. The issues were, not surprisingly, about the reality of global warming and about the role of human activity. This was certainly the most passionate debate this online community has had for the past few years, with a lot of people denying either the concept of global warming, or the role of an anthropogenic (i.e., man-induced) effect on greenhouse gas emissions.

As I am not a climate scientist, I did not join the discussion. However, I have learned a few things on this subject by reading a lot of literature:

  • Climate analysis and modeling is extremely complex due to the number of parameters playing a role, and the importance of interactions between parameters (including higher-order interactions, i.e., interactions between interactions). Climate behavior is not intuitive and sometimes is counterintuitive. This makes simple “good sense” analysis very unreliable and often misleading. And there is some confusion between climate forecasting and weather forecasting.
  • SPE produces high-quality technical literature through our peer-review process. In the domain of climate science, there are dozens of peer-reviewed papers/articles stating that there is likely a man-induced impact on climate change, and not a single one stating the opposite. I mean peer-reviewed by reference organizations, not a group of friends peer reviewing each other.

For these reasons, it appears to me that climate change caused by an increasing greenhouse gas effect, mostly the result of carbon dioxide emissions, is likely, even if I have no absolute factual evidence for that. Most important is the fact that, globally, a growing and already important number of people, including the general public and decision makers, have the same opinion and related concerns. Also, this opinion is very widely shared within the younger generations. I had the opportunity as SPE president a few years ago to meet a large number of university students all around the world, and I have been very impressed to see the concern about climate change by the vast majority of these students. And the discussion in the SPE online community I mentioned earlier was joined mostly by experienced members and included few (if any) younger members. For those who want to persuade people and politicians that this is not an issue, it looks like the battle is already lost, and the policy of the current US administration cannot change long-term trends, although it may delay things a bit.

A consequence of all this is the development of “green” alternatives. I note that the meaning of “green” is unclear for many people: does it mean decreasing emissions of polluting agents, such as sulfur compounds, nitrogen oxides (NOx), fine particles, etc., all detrimental to human health? Or does it mean decreasing emission of greenhouse gases, mostly carbon dioxide? Or does it mean both?

Many people, including politicians, believe that these two aspects are the same, which is wrong. In fact, they are most often contradictory; pollution-reducing devices have a cost in terms of energy efficiency. Also, the full chain of energy supply must be considered, which is often not the case. The development of electric cars considered by many as the ultimate solution for individual transportation, is symptomatic. No doubt that electric cars will reduce local (city) pollution, but the effect in terms of CO2 emissions is variable. In areas where electricity mostly comes from renewables, there is a strong reduction of CO2 emissions. Norway is a good example, with more than 90% of electricity coming from renewables, thanks to abundant hydropower resources. And I will not mention nuclear, which is almost anathema these days. But in other countries (Poland, Australia, and China, to give a few examples), about 80% of electricity is produced from fossil fuels, and the majority from coal-fired power plants. In these areas, electric cars are literally fueled by coal.

So the question is how to prepare for the future. First, we must keep in mind that our modern civilization is based on the availability of abundant energy. Even an activity such as the creation of bitcoins is surprisingly quite energy intensive. But with the growing concern about the climate, the oil and gas industry is more and more seen as a problem, which puts this industry at risk. However, we (the E&P sector) have the competencies and capabilities to develop at wide scale a solution for mitigation, at least partially, of the problem: carbon capture and storage (CCS). We know about gas processing, evaluation of reservoirs, gas injection, and long-term monitoring, all in the CCS chain.

Today, CCS is not moving forward because of obvious economic reasons: it is only an additional cost, without incentive. If a sufficiently high carbon tax was implemented globally, CCS would become quite an attractive option to deal with CO2. You will earn more by capturing and storing CO2 than venting it into the atmosphere and paying the carbon tax. The tax should be high enough to also provide funding for development of new technologies, such as mineralization of CO2, which is particularly interesting as gas storage capacities are not infinite (not all depleted reservoirs are suitable). In addition, development of CCS would create a new business for our industry, I do not see any other sector with the required range of know-how.

Continuing our business as it is today (simply supplying energy) puts the E&P industry at risk in both the mid and long term because many will see it as a problem. On the contrary, if CCS develops, we will supply a combined package: abundant and affordable energy, plus the mitigation of greenhouse effects. This will happen if a high enough carbon tax is implemented. It would create discomfort in the short term, but would allow our industry to be seen as part of the solution regarding the issue of climate change.

The views expressed are those of the author and do not necessarily reflect an official position of SPE or the SPE Foundation.

 

Alain Labastie was 2011 SPE President and is a trustee of the SPE Foundation. His career has included the positions of engineering adviser, EOR Technologies, for Total and numerous positions in reservoir engineering, primarily in R&D and technology development. Labastie served on the SPE Board as director for the South, Central, and East Europe region before becoming SPE President and is a former chairperson of the JPT Editorial Committee. He has been involved in numerous SPE committees, including the Distinguished Lecturer, Annual Technical Conference and Exhibition, International Petroleum Technology Conference and Exhibition, Europec Technical, and Forum Series committees. Labastie also chaired the SPE France Section and has been an SPE representative for the Offshore Technology Conference. He earned an engineering degree from Ecole des Arts et Métiers and a petroleum engineering degree from Institut Français du Pétrole.

A Carbon Tax Would Be Good for the E&P Industry

Alain Labastie, 2011 SPE President and SPE Foundation Trustee

01 August 2018

Volume: 70 | Issue: 8

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