A To-Do List for the New Climate Activists on Exxon’s Board
Royal Dutch Shell lost a major climate lawsuit. The management of Chevron suffered defeat by shareholders who voted for setting an absolute reduction target for greenhouse gases. And, perhaps in the biggest coup of all, Exxon Mobil saw shareholders override management to appoint climate-minded board members.
All of that happened in just this past week. These stunning reversals for three of the biggest publicly traded oil companies come right on the heels of an unexpected blow from no lesser an authority than the International Energy Agency, which concluded that getting the world on a net-zero path by mid-century means stopping new oil or gas fields.
The big question is what this news implies for near-term climate policy.
Only one of these events is bound up with measurable, concrete steps towards decarbonization. Shell’s loss in a landmark lawsuit in the Netherlands, if it stands on appeal, would force the oil giant to cut absolute emissions nearly in half by the end of the decade—a significantly more ambitious target than the company had set for itself. Following through on such a deep cut to so-called Scope 3 emissions, a category that includes drivers burning Shell’s signature product, would require a rapid transformation of the company.
For the climate-activist shareholders who overcame entrenched opposition at Chevron and Exxon, what comes next is more open ended. The goal in these shareholder revolts is not to wind down operations and fade away. In the case of Engine No. 1, the activist fund leading the charge at Exxon, the appeal to shareholders is in favor of “long-term, sustainable value creation and protection of your dividend.” Translation: finding a new role for Exxon in a carbon-constrained world.
What that role might be is anyone’s guess. We might see newly empowered shareholders and board members push to accelerate “electrifying everything.” One of the fastest ways to transition away from oil and gas is to go all-in on electrification—think electric cars instead of internal combustion engines, or induction instead of natural gas stoves. Homes can be built with heat pumps and electric water heaters, powered by solar photovoltaic electricity, instead of using fossil-generated heat.
Every one of these electrification steps is a clear move in the right direction, and much needed to boot. They’re also steps away from these companies’ core competency of handling liquid fuels.
The oil giants under the sway of activists might stick with liquids but still move away from oil and gas. The promise here is an embrace of hydrogen or other low- (or even virtually zero-) carbon fuels. The latter would be combined with carbon capture as part of an “air-to-fuel” system.
There may indeed be a simple test to tell just how serious Big Oil’s shift is: Watch the support from Chevron, Exxon, Shell and their peers for carbon capture and storage (CCS) relative to other climate policies. Staying in the hydrocarbon business writ large but going big into CCS gets support from outside experts such as the IEA. It’s also easy to see how oil companies with the most expertise in handling hydrocarbons could help make CCS work.
What’s most striking, though, is how much this depends on policy support. Burning fossil fuels alongside CCS will always be more expensive than just burning fossil fuels alone. This means that government subsidies for CCS are eminently justified, but not at the expense of climate policies that would limit emissions in the first place.
And therein lies the big test for Exxon’s new activist board members—and for Big Oil more broadly as well as the U.S. politicians crafting climate policies in this new era.
This past week brought the introduction of three bipartisan bills focused on CCS. All aim to go beyond existing U.S. federal tax credits, known as 45Q, worth up to $50 per ton of CO2 for verified CCS projects. Big Oil would no doubt like the increased subsidies, and the bills might also do a lot of good for the planet.
But we can also use these policies as a credibility check. The proposed subsidies per ton of CO2 can be compared to a company’s—or a politician’s—broader support for a carbon price or climate policy writ large. Several oil companies support an initial U.S. tax on carbon at $50 per ton, while also preempting other climate policy efforts. If these same companies are now asking for hundreds of dollars per ton to remove carbon via CCS, there’s a clear mismatch.
Last month Exxon proposed a $100 billion CCS hub—“Texas-sized,” as Joe Blommaert, the president of ExxonMobil Low Carbon Solutions, put it in a blog post. Exxon was also asking for public handouts to make the math work, a signal that the $50-per-ton tax credits aren’t enough.
With public policy sure to play such a big role, a shareholder vote that narrowly failed this week is worth considering. Just less than half of Chevron shareholders voted for “full disclosure” of the company’s lobbying activities and expenditures. Oil companies have long lobbied for their own interest over the strongest climate policies. Full disclosure may well be the way to stop that.
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