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ExxonMobil, Big Operators Already Pricing U.S. Carbon Emissions

All five Big Oil majors with huge U.S. operations, along with several super independents and utilities, aren't waiting for Congress to figure out how to reduce greenhouse gas (GHG) emissions. They already use carbon pricing on the expectation that emissions eventually will be regulated.

ExxonMobil Corp., BP plc, Chevron Corp., ConocoPhillips and Royal Dutch Shell plc disclosed that they use an internal price on carbon dioxide emissions (CO2e) for their U.S. operations. Apache Corp., Devon Energy Corp. and Hess Corp. also price their emissions, along with Total SA, PG&E Corp., General Electric Co., Ameren Corp., American Electric Power Co. Inc. and Xcel Energy Inc.

The Carbon Disclosure Project (CDP), which issued its annual report on Wednesday, has for the past 13 years surveyed public companies regarding their emissions programs. This year, 1,000 U.S. companies disclosed their GHG planning in corporate reports, including 334 companies from the S&P 500. Twenty-nine said they use an internal price for carbon in their business planning.

ExxonMobil in 2007 called for concrete steps to reduce emissions (see Daily GPI,Feb. 14, 2007). The largest natural gas producer in the United States now is using an internal CO2e price of $60/metric ton within its business strategies on the assumption that carbon eventually will be regulated. BP uses an internal target of $40, with ConocoPhillips $8-$46; Devon, $15; Shell, $40; and Total $34. Ameren has a $30 price, while Xcel's is $20.

Most companies did not disclose a specific price in their reports, but many set targets. CDP said $20/metric ton is the average among electric utilities in North America, and $40 is the average among the major producers. The overall range in price to drive energy efficiency was $5-70.

"We factor a carbon cost into our investment appraisals and engineering designs for some new projects," BP said. "We do this by requiring larger projects, and those for which emissions costs would be a material part of the project, to apply a standard carbon cost to the projected GHG emissions over the life of the project. The standard cost is based on our estimate of the carbon price that might realistically be expected in particular parts of the world. In industrialized countries, this standard cost assumption is currently $40/metric ton of CO2 equivalent."

At Chevron, CO2e prices are estimated for major capital-project development and approval, using a project's incremental emissions profile. Chevron then assesses the financial impact of GHG regulations and describes the emissions reduction options considered and implemented.

"We developed tools to identify, assess and rank emissions reduction methods; conduct economic analysis; and integrate GHG factors into decision making and overall project development and management," Chevron said. "All capital projects of more than $5 million must conduct an initial analysis to estimate emissions and their potential range of carbon costs and benefits. Analyses are then integrated into the capital projects planning process."

ConocoPhillips said in countries without "existing or imminent" GHG regulations, such as the United States, "all capital projects costing more than $75 million, or impacting annual emissions by more than 25,000 metric tons of CO2e, must use the corporate cost of carbon forecast to provide sensitivity to project economics for management review. ConocoPhillips incorporates the impact of carbon cost on business operating expense during its long-range planning process."

All of Apache's Canada projects are assessed against a carbon price of $15/metric ton of CO2e where "no local process drives a comparable price evaluation against a carbon obligation."

PG&E, based in California, uses a "carbon adder" to incorporate a carbon price proxy for planning analyses, which sets a cost to emitting CO2 when weighing competitive bids for renewable electricity supply from power generators and in all of its all-source request for offers for new generation facilities..."Our use of a carbon adder helps drive more investment towards lower emissions electricity."

AEP said it assumes a price on carbon (either through regulation or U.S. Environmental Protection Agency requirements) "will begin in the United States by roughly 2020," CDP said. "In the absence of clear price signals in the U.S., AEP uses a projected price and expects its pricing approach to evolve over time."

Carbon pricing is becoming standard operating practice in business planning for many U.S.-based companies, CDP found. The companies "acknowledge the process of ongoing climate change -- including extreme and unpredictable weather events -- as a key relevant business factor for which they wish to be prepared."

Most operators expect an "eventual regulatory approach" in some form to address climate change, with U.S. carbon pricing ranging from $6.00 to $60.00. Various terminology used as pricing mechanisms by the companies included the terms "carbon price," "shadow price," "internal carbon fee," "carbon adder" or "carbon cost."

Those with international operations "are especially astute to carbon pricing as a response to regulatory environments in which they operate, such as Europe or Australia, where GHG emissions reductions are mandatory and covered by mandatory cap-and-trade programs or carbon taxes," the report said.

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