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Exxon renews carbon tax pitch amid climate policy uncertainty

Exxon Mobil Corp. renewed its call for a carbon tax, underscoring its view that the policy could deliver investment certainty and steady progress toward global emissions reduction goals.

Exxon officials outlined key components of the energy giant's earnings outlook to analysts on March 7 in New York, culminating in a strong reaffirmation of the company's earlier calls alongside Royal Dutch Shell plc and BP Plc for a revenue-neutral carbon tax.

"Our advocacy for a carbon tax is, let's get rid of the inefficient ones that are hidden and buried that society is paying today and ... not motivating and driving the right kind of behaviors, and let's make it explicit," Exxon Chairman and CEO Darren Woods told analysts in a subsequent call later on March 7. "That is a more efficient process and the economy benefits from that and business benefits from it, and it drives better solution sets. That's why we're advocating for a carbon tax."

Exxon also outlined its long-term energy outlook, pointing to steady demand growth driven, in large part, by the growth of the global middle class in developing countries. Exxon said it expects the global middle class could increase by almost 3 billion people by 2040 with a global population nearing 9 billion, although it acknowledged that the associated rise in demand would be partially offset by increased energy efficiency. Beyond energy efficiency, the company pointed to policy-driven decarbonization as the second aspect informing its energy outlook, which it notes may have less of an impact overall due to a lack of stringency of intended nationally determined contributions set under the Paris Agreement on climate change.

"When we develop our energy outlook, we assume a ratcheting or tightening of policy, very much consistent with the architecture of the Paris Agreement that was signed several years ago," Peter Trelenberg, Manager of Environmental Policy and Planning at Exxon, told analysts.

"Our outlook also does not yet foresee a 2-degree Celsius pathway. We don't see the policy stringency. We don't see the finance flows. We don't see the technologies driving towards that yet," Trelenberg added.

Exxon noted that it currently operates roughly a quarter of global carbon capture technology capacity, pointing to its role as a first mover around carbon capture and storage, or CCS, technology. But broader application at scale, particularly in the power sector, will depend largely on market signals in the form of carbon price, whether it is through a carbon tax or cap-and-trade.

"CCS comes into the mix, we think, in the late 2020s or 2030s, by the time you get to the [right] price point," Trelenberg said, pointing to a carbon price of roughly $100 per ton when applied to natural gas-fired power plants.

At the development level, the company is focused on concentrating carbon and converting it into a feedstock, noting progress around its "Carbonate Fuel Cell Pilot Plant" demonstration project. That carbonate, the company says, would be utilized in fuel cells, which in turn could be used in energy storage.

"That Holy Grail, that paradigm that we thought couldn't happen, we're actually doing in the lab," Vijay Swarup, Exxon Vice President of Research and Development said, referring to the company's carbon fuel cell project.

"It's a long way to go," Swarup admitted, "But early results are promising."