Shell USA Asks Government to Lead in Developing a ‘Cap-and-Trade’ Climate Change Market

John Hofmeister

As the world explores cleaner forms of fuel and the price of gas soars ever higher, energy companies are unexpectedly asking for a government-led regulatory framework, including cap and trade, that will allow markets to begin to operate. Below are excerpts from a recent IOE event at UCLA, where Shell USA President John Hofmeister announced that his company has voluntarily joined the United States Climate Action Partnership in hopes of having a voice in the crafting of this new national framework for energy.


We’ve taken the position quite affirmatively that it is time for government to lead in the development of a regulatory framework for markets to operate in. Shell recently joined the United States Climate Action Partnership as one of several oil companies that are part of this voluntary association of companies. And there is a call for a government-led regulatory framework, including cap and trade and other such policy enablers that will allow markets to begin to operate.

In January of this year, Shell’s chief executive, Jeroen van de Veer, gave an illuminating picture of what is truly a dichotomy: in a global economic environment where most companies would prefer to have freedom, ironically it is in the energy field that companies are actually asking government to lead. The environmental sensitivity of what fossil fuels represent and the dependence of the world on a continued supply of fossil fuels, even while we explore alternatives, is part of who we can be in the coming decades. So, we do espouse government leadership, where we would hope to have a voice—really a plethora of voices to try to found a government regulatory framework by which we can all move forward. We believe that’s important nationally and globally....

....I think the conundrum that we have to come to grips with is the issue of price. This is a hard issue to deal with in a political democracy. I’ve had any number of personal, one-on-one conversations with national and state officials about the price of gasoline. And they’ve gone on both sides of the equation. One criticizes the industry that produces gasoline for conspiring to keep the price high. There’s been a whole other conversation that I’ve had with elected officials in which the conversation turns toward the European solution of raising taxes, to raise prices, to change behavior. But that conversation usually drifts toward a conclusion that, as smart as it might be, in this country it would be political suicide. And that is the conundrum. There is no question that price is a driver; people make choices based on price.

One of the more interesting conversations that we will have as alternative fuels become more a part of the fuel supply system is the correlative impact of more alternative fuels on the price of gasoline. More ethanol or more kinds of vehicles that use less gasoline—in a normal market—will bring down the price of gasoline, which may then cause some people to revert to the proven, traditional, low-cost gasoline as their fuel of choice. One of the issues around price where other parts of the world have some lessons to teach us is, for example, the case of Europe using price to drive the dieselization of Europe. Vehicle fuel priced differently through taxes produces a different outcome in the marketplace in terms of vehicles using diesel, which are far more fuel-efficient than internal combustion engines. If we’re going to educate consumers and government officials, this price issue has to be addressed....

....The hydrogen fuel cell vehicle is a good metaphor for what is essential for energy companies and automotive companies to consider—that is, the role of technology. Technology is, along with price, one of those great levers. Let’s remember that fuel cell technology is not new; it enabled the success of the space flight missions.

The challenge, however, is the cost of the fuel cell and the technological breakthroughs that are required to move us to where mass consumption might be possible. We don’t know fully all the answers to all of the questions, but we do believe that there is enough promise that we ought to give it our best shot. Between the White House, the Department of Energy, companies, universities, and small, entrepreneurial private investors who are participating in this endeavor, I think we owe it our best shot.

There are a few days in October for an advisory committee that is working under the Department of Energy to come forward with the achievability of hydrogen fuel cell vehicles in a time frame that we can imagine. That time frame could be the next five, ten, 25, or 40 years, with an ever-more progressive evolution occurring. It’s a little hard to jump at what is to be, but without going through the iterative steps it won’t happen. I think that story will evolve in the years ahead.

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