Outline of a group of oil rigs

State-owned energy companies are among the world’s most polluting – putting a price on carbon could help

Existing measures to cajole companies to decarbonise, with subsidies for renewable energy and carbon taxes, have failed to prevent global emissions rising. Does state ownership, particularly in the energy sector, make this process easier?

State-owned energy firms that search for, produce and refine fossil fuels are among the most polluting organisations in the world. But because governments have a big say in how they operate, it might be considered easier for their emissions to be rapidly phased out by treating them as extensions of the government, without needing to rely on the incentives, fines or sanctions usually necessary to make private firms act.

So far, however, things have not proved to be so simple.

A blessing or a curse?

When it comes to climate change, ownership of a polluting company creates a dilemma for a government. On the one hand, state-owned firms are better equipped to bear the costs of decarbonisation as they can draw from a tax base (a more reliable revenue source) to subsidise green measures.

But ownership of a polluting, state-owned firm also creates conflicting incentives within and across different branches of a government. Some ministries may rely on the income generated from these industries (such as the Saudi Arabian Oil Group) to finance public services or support pensions. Other ministries, perhaps responsible for environmental protection, will be tasked with curtailing the activities of these firms to cut pollution.

This conflict indicates that state-owned firms are not simply “instruments of the state” that can be easily directed to cut emissions quickly. The ability of governments to use state-owned firms to tackle climate change depends on various governance issues within the state bureaucracy.

Governments attempting to reform state-owned entities can face resistance from various stakeholders – ranging from the workers and managers of these firms to the users of subsidised services, who may object to higher tariffs to fund a transition to renewable energy.


For the full article visit the Conversation.


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