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Exxon joins the real world

January 15th, 2007

For the last few years, Exxon Mobil has been the biggest single source of support for global warming denialism, and has also exercised a lot of influence on the Bush Administration in its do-nothing stance. For a long while, Exxon was able to act through front groups like the Global Climate Coalition, but the corporation has been increasingly isolated and its activities have been exposed to public scrutiny, most notably with the open letter from the Royal Society last year.

Now Exxon has changed its position, recognising the inevitability of some sort of controls on CO2 emissions, and lobbying for a broad approach that will be relatively favourable to businesses like Exxon, rather than one tightly focused on the energy industry. At this point, an association with shills for denialism like the Competitive Enterprise Institute is counterproductive as well as being embarrassing, so they’ve been cut adrift (along with half a dozen others not yet named).

In other news, Stern has responded to critics of his review in a recently published postscript. There’s also a Technical Annex with a sensitivity analysis, something that both critics and those (like myself) with a generally favorable view should welcome.

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  1. wilful
    January 15th, 2007 at 09:38 | #1

    Could we get your review of his postscript please?

  2. Richard Tol
    January 17th, 2007 at 05:40 | #2

    Review of postscript: Stern admits he was wrong but not really.

    I’m a bit puzzled by the title “Exxon joins the real world”. As far as I know, they always had their feet firmly on the ground. They reckoned that it was in their shareholders best interest to fight climate policy, and so they did, and successfully for a while, and their shares kept their value, and now they think it is better to change tactics.

    The other two oil majors under democratic scrutiny, BP and Royal Dutch/Shell, are objectively worse (whether in energy use per value added, or oilspills per turnover) but did spent considerable money on creating a fake green image — but their shareholders fared worse.

  3. jquiggin
    January 17th, 2007 at 08:27 | #3

    A fair point, Richard. I didn’t mean to suggest that Exxon actually believed the lies they were funding. Do you have references for your claims on the relative environmental performance of the different oil companies?

  4. January 17th, 2007 at 11:08 | #4

    Richard,
    If you have the data, could you also please add in the same data for Saudi Aramco, National Iranian Oil Company, INOC, PDVSA, KPC and the other, really large oil companies? I would be very interested to compare the relative tiddlers under democratic scrutiny, like Exxon, BP and Shell against those real giants without that scrutiny.

  5. Uncle Milton
    January 17th, 2007 at 13:04 | #5

    Today’s AFR has a story on BP, at page 11. There is some mention that BP has been better at talking about the environment than actually doing anything about it, with managers rewarded for cutting costs but not protecting the environment. But mostly it seems that BP’s problems have been that it has been organised geographically, with business units for each oil and gas field, whereas Exxon Mobil is organised along functional lines (exploration, development and production). Apparently this is a more efficient way of doing things for petroleum companies.

    Whether to organise by function or geography is a problem faced by all multinationals (some do both, and have a matrix managment structure) and can make a big difference to financial performance, but it is hardly an indicator or a cause of being a good corporate citizen.

  6. Tim Curtin
    January 17th, 2007 at 16:21 | #6

    wilful Said:
    January 15th, 2007 at 9:38 am
    Could we get your review of his postscript please?

    Dear wilful, absent JQ’s review, here’s mine, I’d be glad of any comments.

    Sir Nicholas Stern’s “Postscript� to his Review of the economics of climate change with its Technical Annex purports to be a response to his critics, but is for the most part no more than an overdue succinct summary of the Review, and provides no references to the substantive critiques by Nordhaus, Dasgupta, Tol, Yohe, and many others (the first two are thanked for their comments but their critiques are not cited).

    Nonetheless, the Postscript does bring together the essence of Stern’s argument in his Review, and its weaknesses are equally well displayed. This Note points out some of them but only in bullet form. For much more substantial critiques, see the papers by Carter et al, Byatt et al., and Tol and Yohe in World Economics, Oct-Dec 2006.

    1. Stern’s Postscript states (p.1) “a warming of 5oC on a global scale would be well outside the experience of human civilization, and would transform where we live and how we live our lives�. Unfortunately here as elsewhere Stern relied on the data of the Hadley Weather Centre and the Climate Centre of UEA (Press Release, December 2005), to which Jones of hockey stick fame is a main contributor. Data is provided on the “global� anomalies vis a vis the 1961-1990 mean along with the same for the northern and southern hemispheres. So far so good, but the hot years in the north are placed next to different hot years in the south, thereby gilding the lily (again) with a bogus correlation. In fact only 6 of the hottest years in the north were also in the ten hottest years in the south, and only 6 of the hottest years in the south were in the top ten in the north. Overall, the anomalies in the south were at most 54 per cent of the anomalies in the north for the same years. Over the period since 1860, the south seems to have been as cool as the north until 1940, but since then has warmed at less than half the north’s rate Thus “global� warming if it exists is a problem more for the North than the South, while the majority of the south live in already hot countries where another degree or two will hardly be noticeable. Even the IPCC shows much more likelihood of above average warming in the North, especially North American and former Soviet Union, and less than average warming across much of the South (TAR, Fig.10.4, Regional Climate). Stern appears to imply a mass migration from the North to the South, but warming in the former is more likely to reverse the trend over the last 300 years for northerners to seek out warmer climes in the South.
    2. The Postscript confirms the Review claimed that mitigating climate change would “involve an expenditure (sic) of around 1% of GDP per year� (p.2). That seems small, but in effect reduces the business as usual (BAU) growth rate of over 2.5% p.a. to 1.5%, because to spend 1% of GDP on activities that yield no income for many years if ever, against the gain from avoiding putative damages of climate change that are not expected to be very large before 2100, will indeed reduce the current BAU growth path of income per head. The Postscript admits the expenditure would be very large indeed, at US$1 trillion by 2050, when global GDP is expected to be US$100 trillion (p.3), for a total of US$27 trillion between now and 2050. Bjorn Lomborg who finally earns a passing mention in the Postscript (the Review never mentioned him) has suggested we could do quite a lot to fix other currently more pressing problems (e.g. Aids, Malaria) with that kind of money, but Stern finds this merely “unconvincing�, another of his Olympian judgments without any attempt at direct confrontation.
    3. The Postscript admits the Review “adopted lower pure time discount rates than some earlier literature, and thus …the analysis gives future generations appropriate ethical weight� (p.3). This is a fallacy. As Byatt et al have noted, adopting a very low discount rate to justify public spending now against far distant and uncertain future benefits will unavoidably crowd out alternative uses of public funds that might well secure larger future generations than will be around to enjoy the benefits of the Review’s proposals. For example, spending US$27 trillion between now and 2050 on medical research and treatments could well lead to the eradication of Aids and thereby a LARGER (and more healthy) future generation in 2100. Stern (no doubt unwittingly) implies that we would be better off without some of the future generation.
    4. “We take account of the disproportionate impacts on poor regions…� (p.3) The contradiction here is that the IPCC’s SRES shows very fast growth of the economies in poor regions to underpin its runaway projections of CO2 emissions. As they will be remarkably rich by 2100, spearheaded by Zimbabwe according to the IPCC, and as these regions being all in the South will experience smaller increases in temperatures, one suspects they will be well able to fend for themselves.
    5. The Postscript complains “some still deny the science of climate change� (p.4). However the papers in World Economics have highlighted some weaknesses, noting the IPCC’s TAR comments first, that “in climate research and modeling, we should recognize that we are dealing with a coupled non-linear chaotic system, and therefore that the long-term prediction of future climate states is not possible� (my emphasis), and secondly, that the IPCC still rated the “level of scientific understanding� of nine out of twelve identified climate forcings as “low� or “very low�. Carter et al. cite recent peer reviewed papers that also raise fresh doubt, including Svensmark et al in no less than the Royal Society’s Proceedings: Henrik Svensmark, Jens Olaf P. Pedersen, Nigel D. Marsh, Martin B. Enghoff, and Ulrik I. Uggerhøj (2006),‘Experimental evidence for the role of ions in particle nucleation under atmospheric conditions’, Proceedings of the Royal Society A: Mathematical, Physical and Engineering Sciences. DOI: 10.1098/rspa.2006.1773. Unlike most if not all “climate science�, this paper reports experimental results (not computer models) that if they prove to be replicable have serious implications for The Science of AGW.
    6. Stern’s Review was remarkable for its downplaying of the scope for adaptation to climate change’s worst effects if they should materialise, and the Postscript is no better when it states “but there are limits to adaptation. Small island developing countries threatened by sea level rise have fewer options to adapt. Sea defences are particularly costly for low lying islands…� (p.7). Probably only a small amount of the US$27 trillion to be spent on mitigation would suffice to build seawalls (at a fraction of the height of the Great Wall of China) around all these unspecified islands, whose total circumference might well be less than the length of the Great Wall. Are we in this 21st Century so much more incompetent than the China of a millennium ago?
    7. The only interesting element in the Technical Annex to the Postscript is the admission (in footnote 12) that after all “it is assumed that most regions can adapt to some degree of temperature rise�. What degree is not stated, whether 2,3, or even 5.
    8. But also significant is the admission in the Annex’s sensitivity analysis (Fig. PA.2) that so far from the damages of climate change amounting to the 5-20% of GDP “now and forever�, NO loss of GDP per capita is shown before 2050.
    9. The Annex claims to deal with the economics of risk, but fails to do so, beyond claiming that ŋ “the elasticity of the marginal utility of consumption� (set at 1) “here plays a double role as an indication of (relative) risk aversion and of aversion to inequality�. Here again we have some of Stern’s favourite normative value judgments. Strictly speaking, unless it can be shown that the gainers from forgoing the costs of mitigation would NOT compensate losers from climate change, use of income distribution arguments should play no role in what was supposed to be a positive review of the costs and benefits of dealing with climate change. The income projections in the Review show clearly that the vast growth in the level of global GDP by 2100 would make it easy to compensate those adversely affected (or help them to adapt). Thus the first role of ŋ (as elasticity of marginal utility) should have been dispensed with, and merely assuming without proving that the value of risk aversion is one because that conveniently produces the low social discount rate used by Stern is again evidence of his normative rather than positive approach throughout the Review.

  7. Richard Tol
    January 17th, 2007 at 18:16 | #7

    The data on the environmental performance of the three oil majors can be found in their annual environmental reports, which are at their main websites. The data I quote are 2005, when I last taught this in class.

    National oil companies do not report on such matters.

  8. January 18th, 2007 at 09:05 | #8

    Richard,
    That does not surprise me. In essence, the ones that attract critisism are the ones that publish the data, whereas the ones who would be worse (at the very least, in quantity terms) do not get critisised because they do not publish the data.
    There is an unfortunate lesson here for the oil majors.

  9. January 18th, 2007 at 21:27 | #9

    AR says:

    “There is an unfortunate lesson here for the oil majors.”

    It is also- and much more importantly- a lesson for regulators. Transparency is in the public interest and legislation should ensure large corporations report on their environmental performance.

    Richard Tol’s point is false if AGW leads to a significant overall decline in global economic performance.

  10. Richard Tol
    January 18th, 2007 at 23:07 | #10

    Steve: Which point is false?

  11. January 19th, 2007 at 10:39 | #11

    Steve,

    The real problem here is that for the NOCs (the national oil companies like the ones discussed above) they are effectively both the regulator and the regulated. The really big polluters (the NOCs) never even have to issue an annual report, never mind give figures on pollution. Because the NOCs seem to be beyond critisism by those who routinely critisise the much small oil companies, like Exxon, BP and Royal Dutch / Shell, the public get a very skewed and, IMHO, unwarranted idea that the private companies are responsible for most of the pollution.

  12. jquiggin
    January 21st, 2007 at 00:14 | #12

    AR, I think you’re stretching a bit here. A quick Google reveals that Exxon has about twice as many employees as Aramco, which suggests that it is doing more work in total. I assume that Aramco pumps more oil, but since most of this is from a relatively small number of mature fields in the Arabian desert, environmental damage per unit of output* is likely to be smaller than (say) in offshore drilling operations.

    That’s not to say that you don’t have a point, but I think you’re exaggerating.

    * That is, from production. The real problems come from burning the oil, but that’s much the same regardless of who produced it.

  13. January 21st, 2007 at 08:33 | #13

    Perhaps in the case of Aramco, producing onshore, but PDVSA? 45,000 employees, recent mass sackings after a strike, new and politically appointed staff, offshore production from old wells.
    I know that Chavez is FOTM on parts of the left (not yours I hope) but critisising the majors without even attempting to assess the impact of the NOCs either smacks of laziness or something else.
    The way the NOCs and their governments strongly encourage oil consumption at home while the subsidy money could be used for things like education and health (or even not taxed or borrowed in the first place) means that it is not the same whoever produced it. The Venezuelan government is currently spending more to subsidise oil consumption at home than it is on health or education or social welfare or any other budget item. If this does not encourage waste and over-consumption then I would be, to put it mildly, very surprised.
    The spills and pollution from other sources is likely to be a problem for Venezuela in the future. The budgetary madness and CO2 emissions that directly result is one for now.

  14. Lobes
    January 21st, 2007 at 12:54 | #14

    Good for Exxon.

    But if they think this means I’m going to start filling my car at any of their stations they are very much mistake.

  15. jquiggin
    January 22nd, 2007 at 04:50 | #15

    Just to be clear, AR, my criticism has been directed very specifically at ExxonMobil, for its political actions.

    And no, Chavez is not FOTM (a new acryonym for me) as far as I’m concerned. He strikes me as a fairly typical demagogue who has been given more legitimacy than he deserves by a clumsy US-backed attempt to overthrow his democratically elected government (in saying it was clumsy, BTW, I don’t mean to suggest that a skilful and successful coup would have been better).

  16. January 22nd, 2007 at 13:50 | #16

    PrQ,
    I would agree with you on those – I was picking up on Richard Tol’s comments (at #2) on the “majors’” environmental record in my comments rather than any comment on Exxon’s contributions to the AGW debate. His second paragraph I would agree with – the Exxon board was clearly following Exxon’s best interests, or at least what they interpreted as Exxon’s best interests, but clearly they have now seen that their best interests now lie along a different path.

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