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Can the Fossil Fuel Industry Survive a Climate Change Agreement?

Dec 12, 2015

As the Paris climate meeting winds down, the talks have boiled down to two big questions: How fast can greenhouse emissions be reduced? And can the energy business change quickly enough to meet global climate change goals?

ExxonMobil, No. 2 on the Fortune 500, is one fossil fuel behemoth that is front and center in the debate.

Exxon acknowledges that global climate change is a reality and that “man is contributing,” Exxon’s media relations manager Alan Jeffers told me, noting that Exxon currently doesn’t use and has “cut-off” funding for research by organizations that operate outside “legitimate science.

“In view of the monumental scale of the world’s need for energy, solutions are not easy," he said in an email. "[T]hey will take time, huge investments and thoughtful policies.”

But how long can we afford to wait? An Exxon publication entitled “The Outlook for Energy: A View to 2040” predicts that, “[G]lobal energy-related CO2 emissions will rise by about 25 percent from 2010 to 2030 and then decline approximately 5 percent to 2040.”

Waiting 15 years to begin lowering emissions would have serious consequences, however, according to Kevin Anderson, the deputy director of the University of Manchester’s Tyndall Centre for Climate Change Research.

Writing in October for Nature Geoscience, Anderson said that current mainstream predictions understate the challenges because scientists “simply have not been prepared to accept the revolutionary implications of our own findings, and even when we do we are reluctant to voice such thoughts openly.”

Anderson believes to prevent a greater than two degree warming of the earth, which is the subject for the Paris talks, "profound and immediate changes" to energy consumption and production will be required and “global mitigation rates must rapidly ratchet up to around 10% per year by 2025, continuing at such a rate towards the virtual elimination of CO2 from the energy system by 2050.” He writes that such a pathway "cannot be reconciled with the repeated high-level claims that in transitioning to a low-carbon energy system ‘global economic growth would not be strongly affected.’”

Anything close to that level of mitigation would require monumental transformations in the energy industry, both immediately and over the next 35 years.

Some investment managers who think they see the handwriting on the wall or have climate change concerns and do not wish to fund fossil fuel companies any longer have begun to divest their ownership in companies like Exxon. Some state legislators have also been introducing bills this year to push state pension funds to divest. And last year, the Rockefellers, members of the family that built Standard Oil (which became ExxonMobil) divested their charity’s holdings in fossil fuels. The Guardian reported in September that “Institutions worth $2.6 trillion have now pulled investments out of fossil fuels.”

Bill Gates, who has come under fire for his foundation’s investment in fossil fuel companies, has also pulled back some of his investments there according to a Seattle Times analysis in mid-November.

“In 2013, the trust that manages the foundation’s portfolio held at least $1.4 billion in stocks and bonds in companies like ExxonMobil and Royal Dutch Shell…The trust’s 2014 tax return shows investments in those firms fell to about $475 million,” the Seattle Times reported. The foundation had divested completely of Exxon, selling off “more than 8 million shares of Exxon worth nearly $825 million.” And Fortune reported last week that Gates announced a "clean energy investing initiative,” still in the process of formation, that is said to "have the financial support of fellow billionaires."

When did the Exxon board first learn about potential climate risks? Jeffers did not provide a specific date but in an email follow-up, Jeffers referenced a 1989 board presentation that he says “clearly refutes the stories that wrongly suggested definitive conclusions were reached decades ago by company researchers [on climate science].”

The February 1989 board presentation explained that more research was needed, while at the same time advocating that Exxon support efforts “like energy conversation, restriction of CFC emissions, and efforts to increase the global ratio of re/de forestation…and pursuing new technologies for the future.”

That same year, an Exxon newsletter called Connections included an article entitled “Greenhouse Science” which concluded that “While uncertainty exists, science supports the basic idea that man's actions pose a serious potential threat to climate. Efforts to minimize that risk will influence the future direction of the energy industry.”

A decade later, in response to a shareholder proposal in 1999 on climate risks, Exxon’s board wrote, “Exxon believes that sound science and sound economics should light the way as society addresses climate change. Patience is important as we allow facts to guide our course of action.”

As the University of Manchester’s Anderson makes clear, Exxon is not alone in suggesting there are not only economic and human benefits to change but also economic and human costs that many may not recognize or wish to openly discuss.

"[W]hat would the world do without 75-80 percent of global energy provided by fossil fuels?" Exxon's Jeffers wrote me.

"It runs the world," he told me. "Energy that is, not Exxon."

Eleanor Bloxham is CEO of The Value Alliance and Corporate Governance Alliance (http://www.thevaluealliance.com), an independent board education and advisory firm she founded in 1999. She has been a regular contributor to Fortune since April 2010 and is the author of two books on corporate governance and valuation.

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