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Is Big Oil the New Tobacco?

Big Oil New Tobacco

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The Surgeon General first concluded that cigarettes cause cancer and other diseases in its historic 1964 report.

From 1976 to 1993, six independent studies found smoking accounted for between 6 and 8 percent of US healthcare costs, which amounted to more than $50 billion in 1993.

To recover these costs, states began to sue the largest cigarette manufactures, Philip Morris, Reynolds, Brown & Williamson and Lorillard.

In 1998, all 46 states, 4 territories along with Puerto Rico and the District of Columbia, entered into a Master Settlement Agreement with the cigarette manufacturer.

It was the largest civil litigation in US history.

  • To date, over $168 billion has been paid to US states and billions more will be paid in perpetuity.

These payments are not just part of the American tax code, taxes on tobacco are found all over the world.

It’s known as excise tax in the national tax code. And they are enacted on goods like tobacco, alcohol, gasoline and even airline tickets.

Since 1998, cigarette companies have paid over $1.6 trillion to governments around the world…

Cumulative Excise Taxes Paid by Cigarette Companies Government Rakes It In With Various “Sound the Alarm On _____” Taxes…

Still to this day, each year cigarette companies pay each US state and territory a lump sum, culminating in a total payout of almost $7 billion annually.

It has been an enormous source of tax revenue for the governments.

Post-pandemic, governments are going to require new “alternative” sources of tax revenue.

The politicians will appear to try to pay back some of these multi-trillion-dollar stimulus packages.

  • A likely source of tax revenue in the United States and abroad (one that would meet very little resistance today) is through a carbon tax.

If we think about the politicians running most of the large, developed world, the tax for green agenda will be in full force.

Carbon taxation continues to be a focal point of discussion among all major nations.

  • So, is it possible, the green, socialist governments make the oil companies pay for greenhouse gas emissions?

The world has known about greenhouse gas emissions for decades.

A famous 1982 internal memo from Exxon scientists predicted the world would hit CO2 concentration of 415 ppm and a global temperature increase of 1C.

Last year global CO2 levels reached 409.8 PPM, while temperatures around the world have warmed 1C.

Royal Dutch Shell’s Greenhouse Effect Working Group from the same 1980s era concluded similar results as Exxon.

But are the oil companies truly at fault?

I do believe the governments recognize (at least behind closed doors) that fossil fuels played an integral role in the world’s development and globalization.

No question – We would not be where we are today without oil.

This is THE Agenda Going Forward Whether You Like it Or Not…

The price companies pay for emissions going forward is certainly up for debate and a hot topic at all political debates.

According to data from Climate Watch and the World Resources Institute…

  • Oil and gas + petrochemical production account for 3.6% of global emissions.

For comparison, iron and steel production accounted for 7.2%.

Transportation (road + aviation + marine) accounts for 16.2% of greenhouse gas emissions.

Greenhouse Gas Emissions by Sector End Use So, while oil and gas producers certainly should be held accountable for their share of emissions, the easy low hanging fruit to go after is the Big Oil companies.

After all, it’s not like the tobacco farmer was on the hook for billions of dollars when they grew the tobacco.

In the United States, it’s been loosely discussed starting at $15 to $25 per tonne tax on greenhouse gas emissions.

  • Treasury Secretary-elect Yellen is pro-carbon taxation.

And being a PhD Economist, who also ran the US Federal Reserve, she will understand that the government needs to find “alternative” sources of revenue.

A carbon tax fits that bill.

In Canada, our carbon tax is $20 per tonne and will rise at $10 per tonne annually until it reaches $170/ tonne in 2030.

In Europe, it’s every country for itself, with tax policies ranging from pennies to $125+ per tonne.

How much Greenhouse Gas do Oil Producers Emit?

Surprisingly, as an industry…

Oil and Gas producers when compared to steel don’t actually emit a significant quantity of green house gases.

  • Steel for example emits over 7% of global greenhouse gases, Oil & Gas extraction emits under 4%.

Given the green socialist agenda the first world has now gone, expect all extraction and manufacturing industries to pay a price for pollution.

What was theoretical logic just a few short years ago is now law in many nations around the world.

Below is a chart of major US oil producers and their annual Green House Gas emissions divided by total production (in terms of a barrel of oil equivalent: GHG per boe produced).

These 14 producers account for 65% of US oil production, making it a reasonable barometer for emission levels.

US Oil Producers Greenhouse Gas Emissions per boe In the next chart below, you’ll see the major integrated oil producers, Saudi Aramco, Exxon, Chevron and others.

Integrated producers greenhouse gas emissions per boe Integrated companies produce crude oil, refine it through their own refineries and sell finished products like gasoline and jet fuel.

So, it should be expected that their emissions footprint is much larger on an oil production basis.

Putting a Value on Carbon in the Oil & Gas Industry

It’s going to be pretty simple and this is what you need to take home…

  • Emitters will pay per tonne of GHG levy.

And I do see the green energy companies getting net credits which can be offset or sold into an exchange.

I am sure some of you will think that this is a bullshit tax and it will bankrupt the oil industry.

It won’t. But it’s going to change oil production dynamics.

This tax will start to move high cost and high emission oil offline and make low cost low emission oil more valuable and global emissions would drop.

There will be ways to play this, and the profits could be enormous.

One company we profiled in depth recently that supplies critical resources to many clean energy companies – has risen nearly 3x since our first writeup.

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Al Gore might not have invented the internet…

But he certainly kickstarted a trillion-dollar market.

We are ready, are you?


Marin Katusa