The CEO of Exxon Mobil, the world's largest oil company, has said that there is a case for serious action on climate change.
The road to Damascus must have been a busy highway recently, it appears that Exxon Mobil, the largest non-tech firm in the world, has been travelling along it.
For so long, Exxon Mobil has had a reputation for advancing an anti-climate change agenda. But now its boss, Rex Tillerson, has said: "We share the view that the risks of climate change are real and require series action." He even came out if favour of a carbon tax. He also said that internally, the company projects a carbon tax of $80 a tonne when making investment decisions.
Recently, the governor of the Bank of England suggested that the vast majority of oil reserves will be left stranded.
Mark Carney said: “The horizon for monetary policy extends out to two to three years. For financial stability it is a bit longer, but typically only to the outer boundaries of the credit cycle – about a decade. In other words, once climate change becomes a defining issue for financial stability, it may already be too late.”
From an economic point of view a carbon tax is precisely the approach that theory recommends. The price mechanism is meant to be the most effective means for matching supply - a function of what something costs - with demand - a function of how much people want it. But pollution is an external cost. And is thus not reflected in the cost of supply. A carbon tax theoretically addresses this, ensuring price really does reflect the true cost of supply.