Two years ago I wrote about the possibility of having a carbon tax in the U.S. I keep saying time would be better spent on getting a price on carbon than all the discussion about net zero, Scope 3 reporting, and climate transition plans. The EN-ROADS climate simulator developed by MIT Sloan School and Ventana Systems Across shows that this is one of the most effective ways to reduce global warming, although it’s not a silver bullet.

But every time I raise the issue of a carbon price the common response, all along the political dimension, is “It’s never going to happen.” I reply that ExxonMobil and the American Petroleum Institute all support a price on carbon, and the response is invariably along the lines of, “They’re just saying this because they know it will never happen.” I disagree. I think they are absolutely sincere and are doing this for business reasons. A key element of ExxonMobil’s corporate strategy is based on this happening.

In the company’s 2024 10-K the company discusses the risks of climate change, efforts to reach net zero by 2050, and states that “The company’s objective to play a leading role in the energy transition.” It doesn’t categorically commit to net zero targets of its own for Scope 1 and 2 emissions, but says this is an ambition “contingent on technology development and supportive prices.” The need for supportive and stable government policies for the energy transition, including a price on carbon are major themes in the 10-K, their 2024 Global Outlook Report, and the Advancing Climate Solutions Executive Summary.

In 2021 ExxonMobil established its Low Carbon Solutions (LCS) business focused on carbon capture and storage (CCS), low-carbon hydrogen, ammonia, lithium (for batteries), and advanced fuels. It is targeting hard-to-abate sectors (e.g., heavy industry, commercial transport, and power generation) which together account for about 80% of global energy-related CO₂ emissions. There is no question about the company’s commitment to this business. So far it has invested $3 billion and plans to invest another $30 billion between now and 2030. Its CCS network is now the largest in the U.S. with over 1,500 miles of CO₂ pipelines. Projects are underway across the Gulf Coast, Baytown, and partnerships in Asia.

The company has high hopes for this business. In interviews and investor presentations it has suggested a potential $6 trillion global decarbonization market by 2050, which Dan Ammann, President of LCS has claimed it will have “a much more stable, or less cyclical, profile.” In an April 4, 2023 video webcast for investors Ammann and Chairman and CEO Darren Woods said LCS has the potential to exceed its oil and gas revenues. The expectation is that the LCS business will account for billions of dollars in revenues by 2030 and earnings of some $2 billion.

Despite their enthusiasm for the potential of the LCS business, the company notes what will determine its degree of discuss. In the “Item1A Risk Factors” section of the 2024 10-K it states that “Our pursuit of lower-emission business opportunities including carbon capture and storage, hydrogen, lower-emission fuels, and lithium also depends on the growth and development of markets for those products and services, including implementation of supportive government policies and developments in technology to enable those products and services to be provided on a cost-effective basis at commercial scale.” In terms of stable government policies the company emphasizes consistency and durability since unpredictable or shifting regulations could undermine project economics or delay deployment. Expanding existing markets and establishing new ones depends on clear and consistent rules on permitting, reporting, and compliance.

Also important is a price on carbon. In a Fortune Leadership Next podcast, Woods stated that “The people who are generating the emissions need to be aware of and pay the price for generating those emissions. That’s ultimately how you solve the problem.” Elsewhere he has suggested it should be at least $100 per ton. Some people read this as ExxonMobil trying to escape its responsibility for Scope 3 emissions. This ignores two things. First, there are very real limits to the company’s ability to influence the corporate strategy and carbon emissions of its vast range of customers. Second, this ignores the company’s economic self-interest based on the potential it sees for the LCS business. One can debate how much fossil fuels will be used in the future but the potential for LCS is very real.

At a carbon price of $100 per ton CCS can deliver up to 25% of national emissions reductions and creates incentives for power producers and industrial firms to retrofit existing facilities.  It can make “blue” hydrogen (from natural gas with CCS) and “green” hydrogen (from renewables) viable and cost-competitive with fossil alternatives. It can increase demand for  renewable diesel, sustainable aviation fuel, and advanced biofuels. More generally, a sufficiently high and stable carbon pricing regime provides clarity for long-term investments which will speed the development of LCS technologies and markets, will foster innovation, and will reward efficiency. All of which will be of enormous benefit to ExxonMobil.

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