It’s About More than the Much Discussed $100 Billion “Promise”
The global oil industry is not going away and needs to become part of the solution to climate change
Picture by Chris LeBoutillier from Unsplash
The bigger they are, the harder they fall is a cherished belief among Americans especially when applied to large, politically powerful corporations. In recent weeks, Big Oil has joined the ranks of Big Tobacco and the makers of opioids in being called to task for its contributions to a major societal problem — in this case, climate change.
Exxon lost three board seats to a slate of clean energy reformers, an event almost without precedent. A Dutch court ordered Shell to significantly accelerate its planned greenhouse gas reductions. Chevron unsuccessfully opposed a shareholder resolution requesting the company to significantly expand its tracking and reporting of greenhouse gas emissions. Also in March, three environmental organizations filed the first-ever greenwashing complaint with the Federal Trade Commission against Chevron, alleging the company’s claims to be taking climate action are false and constitute deceptive advertising. Oil industry critics were elated and quick to cite parallels with the tobacco industry, both based on the magnitude of their economic collapse but also because of their shared arrogance — both knowingly sold a deadly product while denying its harms.
While the celebration in many quarters is understandable, public discourse needs to shift as rapidly as possible to discussion of collaboration and transformation. It’s now critical to help transform, not destroy, Big Oil. Meeting the Paris Climate goals will require dramatic and rapid action — even a ban on new exploration and production of oil and gas would not be sufficient. In the short term, demand for oil is expected to increase, not decline. Most reserves are now owned by state-owned companies with ready access to finance. Reserves sold by the major companies may simply end up in production by those that are smaller and less easily targeted. And barring a major shift in business strategy, Big Oil could become Big Plastic; oil and gas are major inputs in plastic materials and demand is growing even faster due to COVID-19.
Reinvention is difficult but not impossible — if management acts quickly and with sufficient commitment. There are many negative examples; unable to shift from film to other uses of its technology, Eastman Kodak went from a company employing 145,000 to under 5,000 today. In 1999, BP was the world’s leading maker of photovoltaic cells. A decade later, the company left the business as China came to dominate the market. However, there are precedents for successful reinvention of large corporations including IBM, Corning, and American Express. In each case, management accepted the need for a massive refocusing of business strategy and redeployed skills and assets to products more relevant to changing societal needs.
The oil companies are still major employers with significant assets and skilled engineers and construction crews. As Jason Bordoff, Dean of the Columbia Climate School notes, “The majors have the capital budgets, engineering expertise, and project management skills to develop [clean energy] technologies at the massive scale needed for global decarbonization if they can be made to shift in that direction.” Their resources can and should be redeployed to climate solutions such as offshore wind, EV charging stations, making of hydrogen, and carbon capture and storage.
The rapid response that climate change requires also implies the need for government intervention and support. Again, there are precedents. EPA worked with the electronics industry to replace ozone depleting chemicals used as solvents and created a prize for a super-efficient refrigerator that helped bring about dramatically better products in the 1990s. The government of India and multiple foundations recently awarded two of the largest air conditioning companies prizes for developing climate friendly designs that can provide cooling without warming the planet. Meanwhile, public policy should encourage the oil companies to transition with measures such as incentives for EVs and charging stations; restrictions on leasing of public lands for oil and gas production; and tax incentives for carbon capture and storage (except when used for tertiary oil recovery). Exxon’s new board members, all of whom have impressive clean energy backgrounds, can help lead the way.
The challenge for the Big Oil will be to identify products and services well suited to their skills and resources, while almost certainly accepting lesser profit margins. For decades, oil companies have operated with staff massively invested in sophisticated technologies to extract, process, and distribute natural resources. Whether these firms have the leadership, vision, and will to make the urgent transition needed may determine not only their fate, but that of all life on the planet.
Alan Miller is a former climate change officer in the International Finance Corporation (2003–13) and climate change team leader, Global Environment Facility (1997–2003)