Table of Contents
Since the beginning of the industrial revolution, the rate of carbon emissions has continued to increase and still continues to increase as the world continues to industrialize. The increase will even be at a faster rate and more rapidly as the state of the global economy continues to expand. Carbon emissions are among the significant causes of climate change as increased atmospheric concentrations of carbon gases have affected the global climate. The petroleum industry is particularly at the heart of the industrialization and the effort for fighting climate change starts with this industry. The proposed policy by the government is an effort to reduce these emissions by imposing stringent penalties on the manufacturing industries that fail to support the fight against climate change. This policy has wide reaching impacts on the petroleum industry and the petroleum firms as well as the society as a whole. It is indeed in the best interest of every living, breathing thing on the face of the earth to support the war on climate change, and policy formulation represents just one of the ways to do this.
The threat of climate change has become a living reality in the modern century and many methods have been employed in the fight to reclaim a clean and health and greener environment. The fight has sometimes gotten dirty as different stakeholders face-off with the aim of protecting their vested interests and the interests of their companies and industries. The petroleum industry is a significant player in this fight as it is at the center of environmental pollution and the fight against climate change. Consequently, every policy formulated by the government has the greatest impact on the performance and the continued existence of the industry. The proposed policy by the government specifically targets the reduction of carbon emissions by at least 2% per year (Charles & Abdus 1999). The implication of this policy on the petroleum industry is that the industry will have to adjust its production processes and possibly adopt new methods of production that will enhance the reduction of the emissions. The achievement of this and many other adjustments that the industry may have to adopt may come at a price and at times, it may not be possible for most petroleum firms to implement such changes.
The formulation of a clear, consultative and inclusive policy is critical in the achievement of any progress in the fight against climate change. Having a policy that is practical and can be implemented with the least negative impacts on the parties involved is the flywheel upon which the fight on climate change should be built. The intent of the government in introducing this policy was to probably attract the attention of the major industry players to get involved in the process of the environmental conservation. Therefore, by imposing stringent penalties and on the industry players who do not make an effort in reducing the rate of carbon emissions, the government hopes that such industries may put in increased efforts in reducing the rate of carbon emissions. This is a policy that is aimed at having a deterrent effect and encouraging the adoption of more efficient methods of manufacturing energy products (Bo 2009).
The energy industry and more precisely the petroleum sector, involves production processes which are highly intensive and the account for a good fraction of carbon emissions globally. Indeed, petroleum industries release almost a third of the global energy uses and over 50% is supplied by fossil fuels. These consequently translate to about 35% of the emissions being carbon dioxide emissions. The energy industry therefore faces a tricky situation in as far as carbon emissions are concerned in regards to the regulatory policy. In this era of globalization, any countries rely on the petroleum industry for the growth and development of almost every sector of the economy. It therefore is an integral sector of the globalization to such an extent that where the industry suffers, so does the rest of the economy globally. The policy must, take into consideration the implications of imposing stringent penalties in regards to the reduction of carbon emissions. This policy will therefore, have an impact on the petroleum as a whole and on individual companies in the industry. These effects may include both positive and negative (Nicky & Thomas 1988).
The policy effects
In introducing a policy that imposes a penalty duty of 40% on firms that fail to comply with the requirements of the policy, the implications of such a policy are bound be of a wide ranging kind. Firstly, the industry is faced with the growing demand of petroleum products in the rapidly globalizing world. These demand is expected to increase in the 20 years, despite the expected growth in the use of alternative renewable energy sources such as wind and solar. This expected increase in the demand is supposed to be balanced against the demand for the reduction of carbon emissions by at least 2% per year. Satisfying these two demands requires considerable adjustments to how the petroleum industry carries out its businesses. Even though the rate of dependence on renewable energy sources is expected to grow, the growth is at a very small percentage and its influence will not have a considerable impact on the consumption rate of petroleum products (Kamal 1979). Therefore, with this in mind, it may prove almost difficult to implement this policy as the impact on the petroleum industry is likely to be adverse.
The adoption of new production methods by the petroleum firms will lead to efficient, effective and improved methods of production. The manufacturing process will therefore become less costly thereby leading to reduced prices of petroleum products and hence facilitating the growth of the economy. Adopting new production methods will help firms in the fight of reducing carbon emissions. This is because, adopting new methods which employ new technologies help in the reduction of the amount of heat produced thereby reducing the rate of carbon emissions (Zhiguo 1998).
The policy may also lead to the reduction of the amount of petroleum products produced in a bid to achieve the 2% reduction in carbon emissions. This is because, in order avoid a 40% penalty for failure to prove reduction in emissions, the petroleum firms may opt to reduce the production capacity of their products and instead recoup the lost income by increasing the purchase of the products for the final consumer. This will affect the growth of the economy, as any slight increase in the price of petroleum products has always led to an increase in the cost of every other commodity in the market and consequently, increasing the cost of living. Similarly, reducing production capacity may mean a reduction the available work done and as a result, many people may lose their jobs. Creating unemployment in the effort of enforcing a policy aimed creating a more stable economy and habitable environment, may not be the intended purpose of the government.
The policy will also negatively affect the petroleum industry significantly as it will increase the rate of completion in the market for its products. This is particularly true where the transport industry is concerned. The oil industry indeed has a death grip on the transport industry in the world over. Almost every developed and developing country places a heavy reliance on the transport sector that is made mobile by petroleum products. However, with the introduction of such a policy, the petroleum industry will be affected severely as the motor vehicle industry will seek to replace oil dependent vehicles with more efficient vehicles (Bernard 2008). In the recent past, there has been increased research and development in the sector of alternative motor vehicle fuel such as biofuels and even in the invention of electric vehicles. These can be viewed as substitutes to the motor vehicles upon which the petroleum industries have the world hostile. The policy therefore, aims at reducing the amount of carbon emissions by creating alternative means of transport thereby reducing the number of motor vehicles using oil from the supply chain.
Closely related to this effect, is the introduction of policies by the government which favor the introduction of alternative means of public transport such as the investment in the electric trains and other automobiles which ferry many people at any one given point. This has the impact of reducing the number of cars being used at any one particular point. Therefore, by introducing a requirement for a reduction of carbon emissions by at least 2% per year, the government is simply compelling petroleum firms to take a more precise approach in fighting climate change. The petroleum industry therefore, is compelled to work extra hard in ensuring that the rate of carbon emissions is reduced significantly and thus, the existence of alternative means of transport does allow the industry to hold the government hostage (David 1978). This policy will consequently ensure that the supply of money in the transport sector is distributed equally to all stakeholders, thereby allowing the growth of other forms of transport.
In addition to all these effects, the policy will also ensure that the industry can develop best practice guidelines that can guide all the other firms in following the requirements of the policy. Through the requirement of controlling and consequently proving reduction of carbon emissions, the industry will be able to formulate a credible, cost-effective and reliable method for measuring, accounting and reporting carbon emissions. These guidelines will enable the firms to compile consistent and reliable emission inventories with which they can use in proving their achievement and compliance with the requirements of the policy. This will help in the management of the rate of carbon emissions in the environment and also give a status on the state of the fight on climate change.
The policy intends to address societal concerns that indeed the petroleum industry cannot continue to ignore. In as far as the history of the petroleum industry is concerned; there has been little attention on the impact of its activities on the society and the environment in which the industry operates. However, this can no longer continue to be the attitude with which the industry handles the society. Many negative aspects have affected the society in general as a result of the activities of the petroleum industry and thus a more conscious approach to these concerns needs to be adopted the industry. The environmental and social ramifications of the mining, manufacturing and production processes of the industry have become more devastating than it can be wished (Salah 1991). The issues that deal with health concerns, oil spills, environmental pollution and internal working environment for the industry workers are increasingly becoming critical to the survival of the industry.
Firstly, research shows that there has been an increase in the number of people diagnosed with skin cancer as the atmospheric concentrations of carbon dioxide (CO2) have increased. The level of respiratory diseases has also increased proportionally with the increase in the carbon emissions. The truth remains that the petroleum industry is a significant contributor to the carbon emissions in the atmosphere. In addressing these concerns, it is important for the industry to take into account the need to take care of the society in which it operates. Under the overriding principle of corporate social responsibility, the petroleum industry has a duty to act in a responsible, caring and harmless manner towards the society. It should take all measures to ensure that the company has a beneficial effect on the society and any arising negative impact should be addressed in an efficient and expeditious manner. Therefore, this policy is one way of ensuring that the industry fulfills its obligations to the society. A reduction in carbon emissions will have the effect of reducing the destruction of the ozone layer thereby reducing the effect of the sun’s rays on the earth’s atmosphere.
Secondly, the petroleum industry also has to address the state of the workers and the working conditions in as far as carbon emissions are concerned. Most industry workers have been reported with increased vulnerability to respiratory diseases and other diseases related to the effects of carbon emissions. The industry therefore has a duty to ensure that the working environment for the workers is conducive and does not expose such workers to any health complications. It is therefore important for the petroleum industry to pay attention to the health concerns of the society and thereby implement the government policy in as far as the reduction of carbon emissions is concerned (American Society of International Law. Working Group on Ocean Environment 1974).
Thirdly, another societal concern is with the impact of climate change and the role that the petroleum industry has to play in fighting the scourge of global warming. Indeed, the effects of increased atmospheric concentrations of carbon dioxide are adverse with severe consequences on food production and food security at worst. Climate change has led to the loss of land area, including beaches and other available land space; there has been a decrease in the amount of forest cover, disruptions of water supplies and changes in weather patterns leading to sudden climatic changes such as a shift in the Atlantic half stream. All these are indications of much worse consequences of climate change in the future. The changes in the weather patterns and the unpredictable climatic conditions, have led to the reduction in the production of agricultural products and thus impacting on food security. It is important therefore, for the petroleum industry to awaken to the reality of climate change and to the fact that they play a significant role in the causation of the problem. One of responding to this societal concern is therefore by ensuring that the levels of carbon emissions reduce significantly in order to reduce the rate at which the climate is impacted (Dennis 2009).
The formulation of a policy is one thing while the implementation and application of that policy is quite another thing. The policy by the government to introduce a 40% penalty duty on the industries that fail to prove at least 2% reduction in carbon emissions could have adverse and far reaching effects on the state of the economy. It is therefore, advisable for the government to have an alternative approach in the effort to reduce carbon emissions where modifications on the policy may not achieve much. The petroleum industry can develop carbon sequestration options which will provide a viable technological method for controlling carbon emissions. This method could ensure that there is a reduction of carbon emissions as it compliments other measures such as improvements in energy efficiency and utilization of renewable energy sources. Therefore, carbon capture together with Geological storage may be a viable alternative to cutting the amount of carbon emissions in the atmosphere. The petroleum and the gas industry can thus meet the challenge of supplying the increasing demand by the world of petroleum energy while at the same reducing the amount of carbon emissions in the atmosphere. Where proper carbon sequestration methods are applied, the industry will be able to maintain its production capacity at a high level and even increase the production capacity depending on the demand, while taking care not to release carbon emissions in the atmosphere (Fred 1916). This provides a viable alternative to the policy, where the companies will lose significant revenue in case they fail to meet the requirements of 2% reduction in carbon emissions per year.
Secondly, the government may adopt measures that encourage and promote alternative transport that is not dependent on oil fuel. The global motor industry is undergoing a significant transformation due to increasing consumer preferences towards vehicles with lower carbon demand. This is completely through the awareness campaigns on climate change and the causes of global warming, which have led to the shift in customer preferences. The government can thus take advantage of this market force and provide substantial investments and even formulate policies which encourage private companies to invest in the provision of biofuels and the manufacture of electric and hybrid vehicles (Dean 2003). The impact this has is that, the demand of oil driven vehicles will significantly reduce as more people will prefer vehicles which do not depend on oil, thereby leading to the drop in carbon emissions. Secondly, the shift in the preferred modes of transport which do not rely on oil fuel, will automatically lead to the manufacturing industry reducing the amount of petroleum products manufactured, thereby reducing the rate of carbon emissions. Indeed statistics show that road transport contribute up to 10% of the carbon emissions in the atmosphere, and thus where other methods which do not have carbon emissions are encouraged, the effect will be to reduce this percentage. Therefore, the government must encourage the formulation of policies that pull away from the consumption of petroleum products and instead direct its attention in promoting the development of alternative means of transport (Philip & Roland 2013).
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Recommendations and conclusion to the government
The fight in climate change is a responsibility of all stakeholders in the world, including the normal citizen of the world. However, the government has a critical role to play in the formulation of policies that guide the fight against climate change and global warming. Different governments in different countries have come up with policies that try to regulate and control the emissions of carbon dioxide in the atmosphere. Some of these policies in some countries appear to be more stringent than in other countries, thereby creating a loophole which the petroleum companies can exploit (George 1951). Therefore, there needs to a formulation a policy that guides all petroleum producing firms in the world on carbon emissions and the rates at which they should be controlled. This will enable a uniform application of the measurements taken in controlling carbon emissions.
Secondly, while formulating policies, the government should approach the exercise from two viewpoints. Firstly where, the policy formulated is aimed at serving a preventive purpose. Such as this policy whose intend is to reduce emissions through the imposition of sanctions. Therefore, the preventive policy reduces emissions through the decrease in emissions-related economic activities or through a shift to more energy-efficient technologies that would allow the same level of economic activities at a lower level of carbon emissions. On the other hand, the formulation of adaptive measures will enable the government to deal with the existing consequences of carbon emissions. These two measures should be formulated together so as to ensure that while we are preventing, we are also dealing with the existing consequences. Thirdly and finally, the government can also promote more sustainable industries by creating incentives for adopting energy efficiency measures in the production processes. Through this, the government will be promoting increased levels of recycling and manufacturing to recover the energy invested through virgin material processing and reducing the embedded energy content of materials.