The fact that the United States is embarking on an oil and gas renaissance should not hamper such efforts. Australia, for example, adopted rigorous climate change policies despite a recent natural gas boom of its own. It instituted a carbon tax that applies to oil and gas development, and is now phasing in a cap-and-trade system that will link up to the European Union and perhaps California, which itself launched a cap-and-trade program in 2012. Canada, the world's 5th-largest energy producer, also passed laws to phase out coal plants and institute a carbon tax in both British Columbia and Alberta; Quebec is launching a cap and trade program that links with California.
Nor should the patchwork nature of these initiatives be taken as an argument against U.S. participation. The future of greenhouse gas diplomacy will inevitably rest with an amalgamation of governments, non-governmental organizations, and private actors responding to both emerging technology opportunities and public sentiment. Already, major oil companies like ExxonMobil, Chevron, and Shell are taking concrete steps at introducing carbon management targets and practices, and most are quietly factoring in the future price of carbon in their long-range strategic planning. Investor Warren Buffet, who previously bought oil and gas pipelines and railroads, just placed a $2.5 billion bet on solar energy.
Even companies investing in the controversial Canadian oil sands are working to reduce emissions by improving energy efficiency, using low-carbon fuels for processing and transport, and even capturing and sequestering carbon. In our private discussions with oil executives, virtually all have acknowledged that climate policies -- such as cap and trade and California's low-carbon fuel standard -- are inevitable in the long run. In some cases, such policies could benefit the companies themselves, even beyond energy efficiency savings. As Carbontracker.org, a website dedicated to aligning capital market and climate change objectives, has rightly pointed out, mining and resource companies that book long-range reserves often have assets on their balance sheets that will never be commercialized, meaning that their shares are overvalued. These companies, which make investment decisions on a 20-year time horizon, will become increasingly eager to formalize climate policies to reduce risk and uncertainty and maintain value for shareholders.
The prospect of environmental activists and policymakers blocking -- or even delaying -- multi-billion-dollar investments in Arctic or other complex pre-salt deep sea resources that might take 15-plus years to bring on line could be disastrous for these companies. Should tighter restrictions on carbon be instituted in the next two decades, returns might be higher on investments in low-carbon natural gas and other cleaner alternatives. Shell's current predicament is a case in point: Should it sink even more dollars into technically and politically troubled offshore exploration in Alaska, or should it focus future spending on unconventional natural gas production and transportation in the lower 48 states?
In January 2012, the chairman of state oil behemoth Saudi Aramco went on record saying, "Greenhouse gas emissions and global warming are among humanity's most pressing concerns. Societal expectations on climate change are real, and our industry is expected to take a leadership role." If the world's oil superpower is willing to accept responsibility, certainly the United States can afford to take a more forward diplomatic stance. By starting with programs that revolve around transportation and standards like those underway in California, the United States might find it can build trust and the will for progress on the global climate change agenda. The Obama administration can leverage emerging successes at the state and local level into a credible global dialogue on climate and transportation policy. That would elevate the standing of the United States to a position of global environmental leadership -- and allow the president to make good on the promise he laid out in his inaugural address.