Getting Big Oil to Behave

Getting Big Oil to Behave.
A pilot project in Alberta’s oil sands—and not subpoenas of Exxon—could secure our future.


Getting Big Oil to Behave

A pilot project in Alberta’s oil sands—and not subpoenas of Exxon—could secure our future.

Big Oil is going through a rough patch. Prices are low and will remain so. President Obama killed the Keystone XL pipeline from Canada. And New York’s attorney general is probing whether ExxonMobil withheld scientific findings that confirmed decades ago that fossil-fuel consumption contributes to global warming. At this tumultuous moment, it’s worth pointing out where symbolism outweighs substance—and shed some light on an industry development that got eclipsed amid all the excitement.

Long an opponent of climate-friendly regulation, Exxon began to soften its line on the underlying science—and even embraced the need, at least in theory, to curb greenhouse gases—when Rex Tillerson succeeded Lee Raymond as chief executive officer in 2006. Nevertheless, the world’s largest energy company continued to funnel millions to climate-denying members of Congress, even after a 2007 pledge to cease contributing to those, in Exxon’s own words, “whose position on climate change could divert attention from the important discussion on how the world will secure energy.” On Nov. 4 it received a subpoena from Eric Schneiderman, New York’s AG. The prosecutor is seeking documents he suspects will show that Exxon deceived investors and the public about what it knew about climate change. (Exxon denies the allegations.) The prosecutor is also seeking a national stage for his climate stance. Schneiderman isn’t talking about the probe, but predictably, others are congratulating him. “I am so proud of New York Attorney General Eric Schneiderman, because he announced that he is going to investigate Exxon,” Democratic presidential candidate Hillary Clinton said at a campaign event in New Hampshire.
If he follows through on his subpoena, what Schneiderman likely will find is that Exxon executives and scientists historically made contradictory statements on human culpability for climate change—a far more mixed record than the systematic public stonewalling the tobacco industry conducted about the dangers of smoking. He’ll also find that while Exxon has joined organizations that questioned mainstream climate science, such as the defunct Global Climate Coalition, Royal Dutch Shell, BP, and others did, too. The latter corporations, however, came around to conceding reality sooner and more forcefully than Exxon.

Industry ambivalence on climate regulation stems from bald self-interest: Oil companies want to continue to sell their staple product (which, by the way, the world’s economies will continue to demand for the foreseeable future). Gradually, that self-interest has evolved toward a more enlightened version, as engineering- and science-based corporations have been forced to acknowledge the consensus that carbon dioxide and other greenhouse gas emissions have contributed to the earth’s atmosphere—and oceans, especially—heating up. That concession doesn’t mean oil producers agree with every proposed response to climate change, but they’re not fighting the basic facts anymore. Navigating toward profit now requires lining up with or against the politics that emerge from popular pressure to act on climate.

As for Keystone XL, Obama framed his decision to block TransCanada’s proposed 1,200-mile pipeline as a vital political signal. Debated in Congress over seven years, Keystone would have carried 800,000 barrels a day of carbon-heavy petroleum from Canada’s oil sands region to refineries along the U.S. Gulf Coast. “America is now a global leader when it comes to taking serious action to fight climate change,” he asserted at the White House on Nov. 6. “Approving this project would have undercut that leadership.”

When he travels to Paris next month for the United Nations climate summit, the president will cite his nixing of Keystone, along with several other recent steps, to enhance his moral authority when pressuring fellow heads of state to agree to a global deal to limit greenhouse emissions. Reasons to view Obama’s pipeline gesture with skepticism include one the president himself conceded: Blocking Keystone won’t stop Canada from exporting oil to the U.S. or anywhere else, for other pipelines and rail routes already exist. Keystone “has become a symbol too often used as a campaign cudgel by both parties rather than a serious policy matter,” Obama said.

The thousands of jobs Keystone backers heralded mostly would have been in construction and ancillary fields such as food services; they’d have lasted for only the two years or so it would have taken to finish the pipeline. Permanent staffing, by contrast, would have been measured in the dozens. On the other hand, Keystone’s absence won’t arrest development of Canada’s unusually viscous form of petroleum, known as bitumen. Even at today’s relatively low price of about $50 a barrel, oil sands projects are “cash positive,” says Shell’s CEO, Ben van Beurden. (That may be true for existing mines, but if Keystone had been built and lowered transportation costs, oil sands operations likely would have expanded more swiftly.)

It would be terrific if Obama could help steer the Paris conference toward progress, but aspirational goals for carbon reduction—if even those can be agreed on—won’t have much real effect unless they’re accompanied by policies that help achieve the goals. The most significant such policies would impose a per-ton price on carbon emissions, via either cap-and-trade rules or direct taxes.

A price on carbon in the U.S. and around the world would unleash market forces to reduce emissions. Greenhouse-intensive energy sources such as coal would become less economical. And industry would have a dollars-and-cents incentive to experiment with technologies that could reduce the climate impact of continued use of fossil fuels.

Which brings us to carbon capture and sequestration—CCS for short—technology that’s been around for decades and involves pricey methods to reduce emissions from power plants and petroleum refineries. With inadvertent bad timing, Shell chose the same Friday morning Obama announced his Keystone death sentence, Nov. 6, to hold a gala valve-turning ceremony for a CCS project linked to the Athabasca oil sands operation in Alberta. A tangle of pipes, stacks, and scaffolding that a layman’s eye can’t distinguish from the rest of a vast refining facility, the Quest CCS initiative is designed to separate out and safely store underground more than 1 million tons of carbon dioxide annually. This is CO2 generated during the initial process of refining bitumen for transportation. One million tons is a significant amount—equal to the annual emissions of some 250,000 cars—but Quest demonstrates that CCS isn’t a panacea. The Shell project removes only one-third of the CO2 produced by the company’s bitumen upgrader; that means the other two-thirds, equivalent to what comes out of 500,000 cars a year, will still head skyward.

Limited though it may be, Quest shows that with the right incentives in place, CCS can happen. Alberta imposes an $11.25-a-ton carbon price, which Van Beurden says constitutes a helpful, if too gentle, kick in the pants to reduce emissions. More salient, the governments of Alberta and Canada provided $650 million in subsidies to get Quest built. The U.S. Department of Energy chipped in $500,000 more for safety monitoring of the carbon, buried a mile and a quarter underground.
Fifteen mostly new CCS projects, including Quest, now operate around the world, Van Beurden notes. The technology won’t take off, though, in the absence of either flat-out government subsidies or a system of carbon pricing at $60 to $80 a ton, which at present doesn’t seem likely. “We don’t make money out of sticking CO2 in the ground,” he says, “so the only way you can do it is to somehow create a price on emitting the carbon.”

Ponder that for a moment: The CEO of an oil multinational asking for government imposition of substantial levies so he’s forced to invest shareholder money in environmental protection. In a joint public statement in June, major European-based oil and gas companies BG Group (which Shell is acquiring), BP, Eni, Statoil, and Total joined with Shell to call for carbon pricing. Less forward-thinking American rivals such as Chevron and Exxon didn’t add their voices to the rallying cry.
Will New York’s investigation of Exxon nudge it to join the cause? Seems unlikely. Singling out Exxon for potential prosecution might cheer environmentalists, but it won’t move us toward a carbon price. It’s strange and too bad that while Shell was pointing the way toward real progress in chilly Alberta, so much attention was being devoted to posturing in New York and Washington.

Bloomberg Businessweek

Getting Big Oil to Behave


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