Who's burned by the carbon tax?

Tit-for-tat carbon tax likely to burn oil, gas, china

This analysis is by Bloomberg Intelligence Analyst Andrew Silverman. It appeared first on the Bloomberg Terminal.

Carbon tax may shell out pain on fuels, manufacturers and China

The G-20's reaffirmation of support for carbon pricing in February leads us to believe that an EU carbon border tax is on track for 2026 and could lead to billions of dollars of levies on big U.S. fossil fuel, steel and chemical companies. In response, the U.S. is likely to adopt its own border tax, which would largely apply to Chinese companies.

Carbon tax may cost oil, gas companies billions

Based on 2020 carbon-emissions data, Exxon Mobil would owe the EU $6.7 billion in carbon taxes and Chevron $3.5 billion. The EU is likely, we believe, to adopt a carbon border tax modeled on its Emissions Trading System (ETS). The goal is to put it in place by 2026. A global pandemic and a Russian military incursion into Ukraine haven't shaken the EU's resolve, and a recent communique from the G-20 reaffirms global support for a carbon tax.

The ETS applies a levy at a rate of $60 per ton of CO2. If non-European countries passed similar taxes, which is likely, it would only add to the burden. The largest U.S. chemical producer, Dow, produced 35 tons of carbon emissions in 2020 and would have owed $2.1 billion, while the nation's biggest steelmaker, U.S. Steel, would have had to pay $1.6 billion.

Aside from oil and gas, those who suffer most from a carbon tax may be paper, steel and chemical makers, because they use so much energy. They also may not be able to pass the cost on to customers. The U.S. Energy Information Administration has said the industrial sector is the most energy-intensive and chemical producers consume more than other industrials, at about 20% of the industrial sector's total energy use. Steel manufacturing amounts to 10% of such use, while paper-making is 6%. Sales margins in the sectors are narrower than most other U.S. industries.

Companies impacted: U.S. Steel, Nucor, Dow, Eastman Chemical, Verso and Domtar.

U.S. carbon border tax would target China

If the U.S. adopts a carbon border tax in coordination with the G-20, and in response to the EU, it would largely target Chinese companies. A U.S. carbon border adjustment (CBA) would apply like a tariff -- companies that don't reduce carbon production are taxed when their goods or services are received by countries with a CBA. China emits more carbon than any other country. The only way to ameliorate the impact of the tax would be to exempt Chinese companies or to reimburse those that qualify for the CBA -- two options which are politically unpalatable to Congress.

The Carbon Majors Database report states that China Coal Group and China National Petroleum alone are responsible for 16% of the world’s carbon pollution.