Oil major ConocoPhillips Corp. (NYSE:COP) released its third quarter 2009 interim update this morning, and while the news was not altogether positive, the company’s share price is up nearly 2.5% in early trading on heavy volume. Chevron Corporation (NYSE:CVX) and Exxon Mobil Corp. (NYSE:XOM) are not following suit, with both down less than 1%.

Conoco’s weakness for the third quarter is third quarter natural gas prices. Spot prices at the Henry Hub have fallen below $3/thousand cubic feet. Coupled with yesterday’s natural gas report for the US Energy Information Administration that noted natural gas in storage is at an all-time high, it seems reasonable that share prices should fall. But Conoco’s exposure to natural gas is not as great as either Chevron’s or Exxon’s so traders seem to believe that the third quarter will be kind to Conoco.

Meanwhile, Exxon’s CEO and chairman, Rex Tillerson told the Economic Club of Washington, D.C., last night that what the US needs to create effective climate change policy is a carbon tax, not a cap-and-trade system such as the one included in the Waxman-Markey bill.

Tillerson’s point is that energy companies prefer predictability to uncertainty. A cap-and-trade system, while it is market-based, is both unpredictable and difficult to administer. He was especially critical of the volatility of a cap-and-trade system, pointing out that “…price volatility undermines the ability to invest in advanced technologies.  Price volatility also creates economic inefficiencies and invites manipulation in the markets for allowances.”

This is not the first time Tillerson has made the argument for a carbon tax, but there are some who wonder if he is not just stirring the soup in an effort to make sure that nothing ever gets done. Politically, a new tax has almost no chance of getting through Congress. And while most economists agree with Tillerson that a carbon tax is both simpler and fairer than a cap and trade system, those same economists generally support cap and trade as a reasonable alternative.

In any event, a cap and trade system or a carbon tax faces tough sledding politically. Pushing a carbon tax over a cap and trade system may be only marginally more difficult, and may well be worth the effort.

Paul Ausick

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