Exxon, in Denial?
Exxon’s denial about the impact of climate change.
The Paris Climate Agreement, agreed to by 195 countries, adopted a legally binding global climate deal. The agreement which is set to begin in 2020, seeks to limit the effects of climate change on the planet. The goal of the agreement was to, at a minimum, keep the increase of the global average temperature to below 2° Celsius, but ideally to limit the increase to 1.5° degrees. Countries, as well as local authorities, will be responsible for reducing their emissions [1].
As the US and other developed countries strive to reduce their emissions, regulations will need to be imposed to limit the amount of emissions that companies produce. Per the White House Office of the Press Secretary, The United States has pledged to reduce its global emissions by 26-28 percent by 2025. The U.S. target will roughly double the pace of carbon pollution reduction in the United States from 1.2 percent per year on average during the 2005-2020 period to 2.3-2.8 percent per year on average between 2020 and 2025 [2]. The White House under the Obama administration has instructed the EPA and other agencies to cut emissions from oil and gas systems [2].
The climate crisis has been caused primarily by 90 companies – one of which is United States based Exxon. Of these leading companies, Exxon has caused 3.2% of global emissions to date; which ranks them second amongst all companies [3]. It is clear Exxon cannot continue with business as usual, however, it is unclear exactly what steps Exxon will need to take. Exxon has said that the economics of climate change are too hard to predict for them to give investors hard numbers about the business of global warming and that global demand will create even more demand for resources [4]. At the end of the 2015, Exxon had oil reserves of 24.8 billion [5]. So, the question is: Will Exxon be permitted to burn their reserves when factoring in the Paris agreement and the global trend to clamp down on greenhouse gas emissions and if they cannot burn these reserves what does that mean for the company?
Exxon CEO, Rex Tillerson, has taken a defiant stance; he stated that “cutting oil production was “not acceptable for humanity [6]. Exxon shareholders aimed to propose that the company publish an annual report about how public climate change policies could potentially impact the company’s profits. Exxon management actively tried to block the proposal from even being heard and the SEC had to step in and force the vote. In May of 2016, against Exxon management’s wishes, 38 percent of Exxon shareholders voted in favor of publishing the report. While a substantial percentage of shareholders, the request did not receive enough backing to be implemented [6].
Exxon management is either in denial about the effects of climate change, hopeful that the Paris agreement will fall apart, hopeful that a climate change denier is elected President or perhaps being deceitful to prevent the erosion of company value. However, Exxon taking this short-term view is not to the benefit of its shareholders, this country or this planet. Exxon is actively fighting efforts to combat Climate Change. Exxon is currently being investigated for funding the publicity that doubted climate change, all the while its own scientists were writing about the seriousness of climate change [6]. Unfortunately, Exxon does not seem to be taking any steps to seriously address the effects of climate change. However, that will not change the fact that extensive and most likely profit damaging changes are going to be implemented in the oil and gas markets. Regulators may need to step in and force Exxon’s hand – whether that maybe further curtailing of emissions or forcing the Exxon management to account for and publish future potential losses from the inability to burn of their reserves. Exxon has been a tremendously profitable company, but it very unclear if it will be save place to invest over the next 25 years.
(658 Words)
Sources:
[1] EC.Europa. 2016. Paris Agreement. [ONLINE] Available at: https://ec.europa.eu/clima/policies/international/negotiations/paris/index_en.htm. [Accessed 3 November 2016
[2] The White House. 2015. FACT SHEET: U.S. Reports its 2025 Emissions Target to the UNFCCC. [ONLINE] Available at: https://www.whitehouse.gov/the-press-office/2015/03/31/fact-sheet-us-reports-its-2025-emissions-target-unfccc. [Accessed 3 November 2016]
[3] The Guardian. 2013. Just 90 companies caused two-thirds of man-made global warming emissions. [ONLINE] Available at: https://www.theguardian.com/environment/2013/nov/20/90-companies-man-made-global-warming-emissions-climate-change. [Accessed 3 November 2016]
[4] NYTimes. 2016. A New Debate Over Pricing the Risks of Climate Change. [ONLINE] Available at: http://www.nytimes.com/2016/09/27/business/energy-environment/a-new-debate-over-pricing-the-risks-of-climate-change.html?_r=0. [Accessed 3 November 2016].
[5] Exxonmobil. 2016. ExxonMobil Announces 2015 Reserves Additions. [ONLINE] Available at: http://news.exxonmobil.com/press-release/exxonmobil-announces-2015-reserves-additions. [Accessed 3 November 2016]
[6] NYTimes. 2016. Exxon Investors Seek Assurance as Climate Shifts, Along With Attitudes. [ONLINE] Available at: http://www.nytimes.com/2016/05/24/science/exxon-investors-seek-assurance-as-climate-shifts-along-with-attitudes.html. [Accessed 3 November 2016]
Pretty disappointing how shortsighted exxon is being. Instead of proactively thinking of ways to accommodate an open discussion, they’re dispelling the cold hard facts. I sort of see their point though, we’re basically saying their line of business is directly correlated to the environment’s destruction. I’ve worked with oil and gas companies and some advice I would give is (i) play up the use of natural gas vs. coal for powering power plants, (ii) BP does a good job of at least acknowledging their impact and theyre proactively pushing for a carbon credit system to regulate the industry. For the first one, natural gas emits 50% of the CO2 that the cleanest coal technology does, so switching this fuel source can lead to a sig. reduction in carbon emissions. Second, I like BP’s approach of pushing for a carbon system, they understand there is a price to pay to operate in a “dirty” business and their willing to pay it. Exxon’s approach is risky and shortsighted, the last thing they want is for governments to impose stricter regulations that immediately reduces their production. They should at least insert themselves into the conversation.
I agree that it is pointless for Exxon to hide the data they have on climate change with the public. I am curious how other companies would react to this type of proposal, assuming they all have gathered similar information. On the other hand, I don’t see what consequences would result from Exxon sharing their research. Even if a report showed oil and gas companies contributing heavily to carbon emissions, there isn’t another energy source currently available that could replace it to meet demands. Once the technology associated with renewables catches up and can be scaled to help meet demand, it will be much more important to have transparency of petroleum’s effect on climate change.
Disappointing, but not surprising, is what comes to mind when thinking of Exxon’s management behavior. Thank you Alex for covering the important topic of how oil and gas mega-corporations are, or are not, facing climate change. I agree that it seems that Exxon’s management is in denial. Maybe they do acknowledge the potential effects of climate change but believe them to be more long term than short term. Maybe they believe it will all happen after their tenure will be over. Maybe, they are knowingly trying to mislead the public, in a similar fashion to Big Tobacco a few decades ago when studies linking cancer with cigarette consumption began to surface. Either way, I think this is a prime example to a situation where the regulators must take a more active role and impose company or industry specific targets linked to mitigating climate change. Perhaps more conversations on this topic, such as this one, will fuel the change.
Thanks so much for your article, Alex. Your post highlighted several issues that prevent climate mitigation strategies from moving forward: (1) lack of understanding or willingness to discuss what is at stake in the climate debate, (2) regulatory capture, (3) the tools of governments and regulators in promoting action on climate, and (4) the critical role of shareholders in moving the climate debate forward, particularly when the agent (Exxon executives) refuses to act rationally. Your post also highlights the grave importance of more blunt, command-and-control legislation to force companies to internalize their externalities. The challenge with the latter, however, is that carbon prices in emissions trading schemes need to be sufficiently high to incentivize innovation to reduce emissions. It is incredibly disappointing to see that Exxon is unwilling to do their part to prevent global warming, but I’m hopeful that more blunt policy tools will right this wrong.