ExxonMo­bil’s danger­ous busi­ness strat­egy

Financial Mirror (Cyprus) - - FRONT PAGE -

While other oil com­pa­nies are start­ing to speak straight­for­wardly about cli­mate change, ExxonMo­bil’s busi­ness model con­tin­ues to deny re­al­ity. That ap­proach is not only morally wrong; it is also doomed fi­nan­cially.

The year 2014 was the hottest on in­stru­ment record, a grim re­minder of the plan­e­tary stakes of this year’s global cli­mate ne­go­ti­a­tions, which will cul­mi­nate in Paris in De­cem­ber. The world’s gov­ern­ments have agreed to keep hu­man-in­duced warm­ing to be­low 2 Cel­sius (3.6 Fahren­heit). Yet the cur­rent tra­jec­tory im­plies warm­ing far be­yond this limit, pos­si­bly 4-6 Cel­sius by the end of this cen­tury. The an­swer, of course, is to shift from fos­sil fu­els to low-car­bon en­ergy like wind and so­lar power, and to elec­tric ve­hi­cles pow­ered by low-car­bon elec­tric­ity.

Many of the world’s big­gest oil firms are be­gin­ning to ac­knowl­edge this truth. Com­pa­nies like To­tal, ENI, Sta­toil, and Shell are ad­vo­cat­ing for a car­bon price (such as a tax or per­mit sys­tem) to has­ten the tran­si­tion to low-car­bon en­ergy and are be­gin­ning to pre­pare in­ter­nally for it. Shell has stepped up its in­vest­ments in car­bon cap­ture and se­ques­tra­tion (CCS) tech­nol­ogy, to test whether fos­sil-fuel use can be made safe by cap­tur­ing the CO2 that would oth­er­wise go into the at­mos­phere.

This is not to say that all is agreed with th­ese com­pa­nies; they have promised to state their cli­mate po­si­tions and poli­cies in ad­vance of this year’s cli­mate sum­mit. Yet at least they are talk­ing about cli­mate change and be­gin­ning to face up to the new long-term mar­ket con­di­tions. ExxonMo­bil, alas, is dif­fer­ent.

The com­pany’s man­age­ment, blinded by its own vast po­lit­i­cal power, be­haves with a will­ful dis­re­gard for chang­ing global re­al­i­ties. It lives in a cocoon of Wash­ing­ton lob­by­ists and po­lit­i­cal ad­vis­ers who have con­vinced the com­pany’s lead­ers that be­cause the US Se­nate is cur­rently in Repub­li­can hands, the busi­ness risks of cli­mate change have some­how been nul­li­fied, and that the world will not change with­out or de­spite them.

At the same time, ExxonMo­bil is not some mar­ginal ac­tor in the plan­e­tary drama. It is one of the cen­tral pro­tag­o­nists. Ac­cord­ing to a 2013 study, ExxonMo­bil ranks sec­ond among the world’s com­pa­nies, just be­hind Chevron, in to­tal con­tri­bu­tions of CO2 emis­sions. In­deed, the study finds that this sin­gle com­pany has con­trib­uted more than 3% of the world’s to­tal emis­sions since the start of the fos­sil-fuel age!

So what does ExxonMo­bil say about the new cli­mate re­al­i­ties? How does it rec­on­cile its cor­po­rate poli­cies with plan­e­tary needs?

Un­for­tu­nately, the com­pany ba­si­cally ducks the is­sue. When asked by in­de­pen­dent an­a­lysts such as Car­bon Tracker how it plans to square its re­lent­less oil drilling with the plan­e­tary lim­its on fos­sil-fuel use nec­es­sary to stay be­low the 2C cli­mate-change thresh­old, it ig­nores the lim­its. It blithely be­lieves that the world’s gov­ern­ments sim­ply will not honor their com­mit­ments (or that it can lobby its way out of ful­fill­ing them).

And so we come to the re­cent Arc­tic re­port. The Depart­ment of En­ergy asked the Na­tional Petroleum Coun­cil, an in­dus­try group, for its ad­vice on Arc­tic drilling. What it re­ceived from Tiller­son’s com­mit­tee is an ex­er­cise in mis­di­rec­tion. The devel­op­ment of the Arc­tic’s oil and gas re­sources would con­trib­ute to warm­ing far above the 2C limit. The Arc­tic it­self is warm­ing far faster than the plan­e­tary av­er­age, po­ten­tially caus­ing mas­sive, global-scale cli­mate dis­rup­tions – which may in­clude the ex­treme weather pat­terns re­cently ob­served in the US mid-lat­i­tudes.

For th­ese rea­sons, the best re­cent science, in­clud­ing an im­por­tant study pub­lished in Na­ture this year, pro­vides a clear and un­equiv­o­cal mes­sage: Keep the Arc­tic oil in the ground and be­neath the deep seas; there is no safe place in the cli­mate sys­tem for it.

The world has more than enough oil and gas re­serves al­ready; we now need to shift to low-car­bon en­ergy, strand­ing much of the proven re­serves, rather than de­vel­op­ing them and fur­ther threat­en­ing the planet. As the Na­ture study puts it: “Devel­op­ment of re­sources in the Arc­tic and any in­crease in un­con­ven­tional oil pro­duc­tion are in­com­men­su­rate with ef­forts to limit av­er­age global warm­ing to 2 C.”

This would have been a fit­ting topic for the Na­tional Petroleum Coun­cil’s Arc­tic study. But the re­port never takes up the is­sue of whether Arc­tic oil and gas re­sources are com­pat­i­ble with cli­mate safety.

ExxonMo­bil’s brazen­ness should be deeply trou­bling for its share­hold­ers. The com­pany’s man­age­ment is plan­ning to spend vast sums – per­haps tens of bil­lions of dol­lars – to de­velop Arc­tic oil and gas re­serves that can­not safely be used. Just as the global shift to­ward re­new­able en­ergy has al­ready con­trib­uted to a mas­sive drop in oil prices, cli­mate poli­cies that will be adopted in fu­ture years will ren­der new Arc­tic drilling a huge waste of re­sources.

Pen­sion funds, uni­ver­si­ties, in­sur­ance pools, and sovereign wealth funds world­wide are grap­pling with the in­creas­ing risks, both moral and fi­nan­cial, of own­ing shares in oil, gas, and coal com­pa­nies. As Lisa Sachs and I re­cently ex­plained, re­spon­si­ble in­vestors must ur­gently query th­ese com­pa­nies about their busi­ness plans to com­ply with the 2C limit on warm­ing.

Busi­ness plans that in­clude in­vest­ments in the Arc­tic, the ul­tra-deep sea, and the oil sands of Canada have no place in a cli­mate-safe world. ExxonMo­bil’s in­vestors must ur­gently query the com­pany’s man­age­ment on a busi­ness strat­egy that con­tra­dicts global needs and pol­icy agree­ments. If ExxonMo­bil per­sists in its danger­ous busi­ness strat­egy, the com­pany’s in­vestors should quickly con­clude that the time has come to pull up stakes and move on.

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