Azara Blog: Naive energy sums done by naive consultants

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Date published: 2006/02/11

The BBC says:

The huge profits reported by oil and gas companies would turn into losses if the social costs of their greenhouse gas emissions were taken into account.

That is the conclusion of research by the New Economics Foundation (Nef).

Nef found that the £10bn-plus profits just reported by Shell and BP are dwarfed by costs of emissions associated with their products.

Nef also suggests UK Treasury revenues from oil and gas may be a disincentive to curbing greenhouse gas emissions.

The comments come in an article for The Green Room, the BBC News website's weekly series of opinion pieces on environmental issues.

Reporting previously undisclosed figures, Nef's policy director Andrew Simms writes: "Our new calculations from research in progress with WWF, based on Treasury statistics, show that UK government income from the fossil fuel sector - conservatively estimated at £34.9bn ($61bn) - is greater than revenue from council tax, stamp duty, capital gains and inheritance tax combined.

"Policies aimed at reducing carbon emissions could therefore have a major impact on the government coffers; a serious disincentive to action."

But, Nef concludes using more government figures, this revenue does not reflect costs associated with climate change resulting from burning oil and gas.

A report prepared for Defra and the Treasury estimates that each tonne of carbon dioxide emitted costs about £20 ($35) in environmental damage.

"Combining the emissions that stem from BP's direct activities and the sale of its products leads to 1,458m tonnes of CO2-equivalent entering the atmosphere, with a damage bill of £29bn ($51bn)," writes Andrew Simms.

"Subtracting that from the £11bn ($19bn) annual profit it has just reported puts it £18bn ($31bn) in the red; effectively bankrupt.

"The same calculation puts Shell £4.5bn ($8bn) in the red, even as it reports an annual profit of £13bn ($23bn)."

An amusing if naive calculation. It completely ignores the massive direct and indirect social and economic benefits of burning all that fossil fuel. NeF almost seems to believe all this fuel is being torched by the oil companies, in a fit of pique. For an organisation with "economics" in their title they seem to know little about economics.

And their complaint that the current carbon taxes that the government collects (mainly from drivers) are "a serious disincentive to action" is rather surreal. Do these so-called environmentalists believe in carbon taxes or don't they? The most "serious disincentive to action" is not the large amount of money raked in by the Treasury from the fossil fuel sector, it is that if the economy takes a nosedive because the government turns off the main component of the national energy supply (which almost seems to be what NeF wants) then the people of Britain will vote out the government. Certain sections of the chattering classes might be happy for the lights to go out, but most people would not.

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