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May 12, 2015

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Let ExxonMobil feel heat over Arctic drilling

ExxonMobil’s current business strategy is a danger to its shareholders and the world. We were reminded of this once again in a report of the National Petroleum Council’s Arctic Committee, chaired by ExxonMobil CEO Rex Tillerson. The report calls on the US government to proceed with Arctic drilling for oil and gas — without mentioning the consequences for climate change.

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 world’s governments have agreed to keep human-induced warming to below 2 degrees Celsius. Yet the current trajectory implies warming far beyond this limit, possibly 4-6 degrees 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. ExxonMobil, alas, is different. The company’s management, blinded by its 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.

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 percent 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 2 degrees 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 2 degrees 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.

Brazenness

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.

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 2 degrees 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. 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.

Jeffrey D. Sachs is Professor of Sustainable Development, Professor of Health Policy and Management, and Director of the Earth Institute at Columbia University. He is also Special Adviser to the United Nations Secretary-General on the Millennium Development Goals. Copyright: Project Syndicate 1995-2015




 

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