ExxonMobil and Climate Change: A Story of Denial, Delay, and Delusion, Told in Forms 10-K — Part Three (E): 2013

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Source: https://go.nasa.gov/2vXO0Vm

By Anne Polansky

Covering the year 2013, this is our latest installment in a timeline series addressing how the Exxon Mobil Corporation has characterized risks to its business operations associated with climate change (in its annual 10-K reports to shareholders), in light of what corporate leadership knew, or reasonably could have known, regarding anthropogenic global warming and associated climate change impacts. For previous segments, see Part One (1993-2000); Part Two (2000-2008); Part Three(A) (2009), Part Three(B) (2010), Part Three(C) (2011), and Part Three(D) (2012).

In 2013, the atmospheric concentration of carbon dioxide exceeded 400 parts per million for the first time in millions of years, marking a milestone that, while symbolic, called greater attention to escalating greenhouse gas levels and a steady global warming trend. Scientists had already been warning that a runaway greenhouse effect could disrupt Earth’s climate system to a point of no return. Climate change impacts continued to worsen in regions across the globe, and few communities were sufficiently prepared for these impacts. Meanwhile, Exxon Mobil was investing its massive $45 billion in earnings in maximizing extraction and processing of oil and gas, including the controversial use of hydrofracturing (fracking) to extract fuel from tar sands and the expansion of offshore oil drilling. Despite pressure from shareholders to address climate change meaningfully, CEO Rex Tillerson stood his ground in suggesting that bringing fossil fuels to those who lack ready access (such as the 1.2 billion people without electricity) was the “humanitarian” thing to do, rather than leading the transition away from an increasingly risky high-carbon energy future. By 2013, nine of the ten hottest years on record had occurred since the turn of the century, and growing instances of harmful climate impacts across the US and the world were impossible to ignore. Yet, these risks were readily discounted by corporate leadership at ExxonMobil.

The Rising Stakes of Escalating Greenhouse Gas Emissions in 2013
In the spring of 2013, the Mauna Loa Observatory in Hawaii reported that the concentration of carbon dioxide in Earth’s atmosphere had exceeded 400 parts per million for the first time in human history; indeed, for the first time in millions of years. The last time levels were this high, Earth was in the middle of the Miocene period and there was almost no ice on the planet. A feature article in National Geographic puts things in perspective:

“The last time the concentration of Earth’s main greenhouse gas reached this mark, horses and camels lived in the high Arctic. Seas were at least 30 feet higher—at a level that today would inundate major cities around the world. The planet was about 2 to 3 degrees Celsius (3.6 to 5.4 degrees Fahrenheit) warmer. But the Earth then was in the final stage of a prolonged greenhouse epoch, and CO2 concentrations were on their way down.”

According to NOAA’s National Climatic Data Center, “2013 tied with 2003 as the fourth warmest year globally since records began in 1880.” The year 2013 also marked “the 37th consecutive year (since 1976) that the annual temperature was above the long-term average.” As of 2013, nine of the ten warmest years on record had occurred during the 21st century; only one year, 1998, was warmer than 2013. Global average temperatures were climbing steadily, at rate of about a third of a degree Fahrenheit since 1970. The previous year, 2012, was the hottest year on record in the lower 48 states. It is virtually impossible to believe that this corporation, with all of its scientific prowess, did not know this.

In January 2013, the US Global Change Research Program released a draft of the third National Climate Assessment, a comprehensive report of climate impacts being experienced in the United States — an assessment required by law to be conducted and published at least once every four years. As reported by Chris Mooney at Mother Jones at the time (now a journalist at the Washington Post), the draft report warned unequivocally that unchecked greenhouse gas emissions would cause the global warming trend to “accelerate significantly,” bringing more heat waves and weather extremes, severe storms, rising seas, devastating floods, prolonged droughts, and more. The key takeaway quote was made by Ed Maibach, director of George Mason University’s Center for Climate Change Communication and a member of the federal advisory committee that released the assessment: “Data is accumulating to show that Americans want their politicians to take action.” Still, despite a host of climate change bills introduced in both the House and the Senate in the 113th Congress, the passage of meaningful climate legislation was not yet in the cards, and is even less of a possibility today given the current political climate.

The Underwhelming Response by Rex Tillerson and the Exxon Mobil Corporation
Meanwhile, the ExxonMobil Corporation had taken in a whopping $45 billion in earnings in 2012. It expanded extraction using hydrofracturing in tar sands to increase activity in offshore oil drilling all over the world, thereby maximizing its rate of fossil fuel extraction and processing. Addressing shareholders at the company’s annual meeting on May 29, 2013, CEO Rex Tillerson bragged that 2012 earnings were the second highest in the history of the oil giant, and was crystal clear about corporate priorities:

“In 2012 we invested $39.8 billion in capital expenditures and total shareholder distributions were $30.1 billion. For the 19th consecutive year, we added more oil and natural gas reserves than we produced and our crude reserve replacement rate exceeded 100%. All of the above results reflect the hard work, diligence and dedication of the almost 77,000 men and women who work on ExxonMobil’s behalf the world over.”

Tillerson was aware of pressure from shareholders to address the climate threat more meaningfully than it had been doing. Pressure was even coming from heirs to the oil fortune, descendants of the company’s original founders. Jane Dale Owen, granddaughter of one of the founders of Humble Oil, the parent company of ExxonMobil, made a strong appeal to shareholders to put more pressure on corporate leadership to divert its resources to cleaner more renewable forms of energy. She wrote:

“As I cast my votes this year, I hope that more shareholders will get involved to move ExxonMobil toward a life-sustaining future. ExxonMobil’s $44.9 billion in earnings for 2012 came close to a world’s record. Instead of wildcatting in costly, unproven non-conventional fossil fuel technologies such as fracking and tar sands that add greenhouse gas to the atmosphere, the company could show foresight and leadership by investing in clean, renewable energy such as wind, solar and geothermal.”

But the shareholder resolution asking the company to set greenhouse gas and emissions reductions goals was defeated: even though it got a respectable share of the vote – 26.8% of voting shares supported the resolution – 73.2% voted against. Still, this sent a strong message to corporate leadership. Normally, when more than a quarter of shareholders demand an outcome, most corporate leaders make strong efforts to meet that outcome; Rex Tillerson was not among them. Instead, despite the growing certainty of climate science that was readily available and widely communicated to the public – most recently in the draft Fourth National Climate Assessment – he had this to say:

“If you examine the temperature record of the last decade, it really hadn’t changed. I know you will like to hear that as it don’t [sic] comport to some of the views of others, but last 10 years’ temperatures had been relatively flat.”

This statement is false and misleading, and is a classic example of one of the favorite tactics of climate change deniers: the use of short time periods to draw false conclusions about longer-term trends. As stated above, nine of the hottest ten years on record had occurred since 2000, and one of those ten occurred in 1998.

Moreover, instead of acknowledging the urgency of the problem and the growing certainty of the science, Tillerson brought out the tired claim that the science justifying action was not there yet: “[O]ur ability to understand all of the relationships between emissions and the environment and the feedback loops continues to be one of the science community’s grand challenges,” he said. Exaggerating scientific uncertainty around the climate change threat was one of the planned tactics of the oil industry’s Global Climate Coalition formed in the 1980s to push back against the Kyoto Protocol, and continued to be a recurrent theme at Exxon headquarters.

At the shareholders meeting, Tillerson pointed out that fossil energy raises the standard of living for people and asked, “What good is it to save the planet if humanity suffers in the process?” The irony of his statement was lost on him: those who were already suffering – and dying – ­from climate impacts (such as more extreme weather, intense flooding, prolonged droughts, and so on) evidently were not considered in Tillerson’s equation.

In a speech delivered just days later, in June 2013, to the Asia Society, Tillerson reiterated the corporate “feel good” philosophy – the story company leaders apparently told themselves to justify the drill-baby-drill mentality:

“Approximately 1.3 billion people on our planet still do not have access to electricity for basic needs like clean water, cooking, sanitation, light, or for the safe storage of food and medicine. Therefore, whether we are leaders in business, policymakers in government, or decision makers in philanthropic organizations, the need to expand energy supplies has a humanitarian dimension that should inform and should guide our energy policy dialogue.”

So, following this logic, it’s humanitarian to continue, even to expand, our dangerous addiction to fossil fuels worldwide. But is it humanitarian to bury one’s head in the sand when it comes to the negative side effects of continuing this reliance?

Contrast Exxon’s and Tillerson’s message, which implies that it’s the right thing to do to lock us into a high-carbon energy future, with that made by the newly reelected President Barack Obama in his January 2013 Inaugural Address. President Obama declared:

“We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations. Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires, and crippling drought, and more powerful storms. The path towards sustainable energy sources will be long and sometimes difficult. But America cannot resist this transition; we must lead it.”

Evidently ExxonMobil had no intention of leading this transition; rather, the corporate attitude was spelled out clearly in its 2013 10-K report to the SEC and shareholders. Public policies that protect against environmental harms are listed as a business risk, i.e. a threat to their basic business model. Under the category “Regulatory and litigation risks” the 10-K says specifically that “changes in environmental regulations or other laws that increase our cost of compliance or reduce or delay available business opportunities (including changes in laws related to offshore drilling operations, water use, or hydraulic fracturing)” are a risk to the company’s health and wellbeing. Also listed under “risks” to the bottom line are policies or regulations that promote “alternative fuels” or “uncompetitive fuel components” – as these further “expose” the company and “could adversely affect results.”

It is apparent to us that Tillerson was seeing climate change in a different light: the global warming trend was having the effect of making it possible to drill for oil in areas that had heretofore been too covered in thick ice to make drilling feasible. In February, ExxonMobil and Rosneft (Russia’s state-run oil company) agreed to expand the deal they made in 2011 to drill for oil in the Russian Arctic. The 10-K report mentions the new joint venture with Rosneft and talks about this massive Russia oil deal this way:

“ExxonMobil’s net acreage holdings in Sakhalin at year-end 2013 were 85 thousand acres, all offshore. A total of 0.9 net development wells were completed. Development activities continued on the Arkutun-Dagi project during 2013. At year-end 2013, ExxonMobil’s net acreage in the Rosneft joint venture agreements for the Kara and Black Seas was 11.3 million acres, all offshore.”

This Russia oil deal has raised much controversy, has now made ExxonMobil subject to penalties and fines for violating US sanctions against the country, and is a focal point of concerns surrounding the appointment of Rex Tillerson as Secretary of State. This will be covered extensively in future posts.

How was ExxonMobil Talking about Addressing the Global Threat of Climate Change?
The 2013 10-K report address climate change and carbon dioxide emissions this way:

“Climate change and greenhouse gas restrictions. Due to concern over the risk of climate change, a number of countries have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. These include adoption of cap and trade regimes, carbon taxes, restrictive permitting, increased efficiency standards, and incentives or mandates for renewable energy. These requirements could make our products more expensive, lengthen project implementation times, and reduce demand for hydrocarbons, as well as shift hydrocarbon demand toward relatively lower-carbon sources such as natural gas. Current and pending greenhouse gas regulations may also increase our compliance costs, such as for monitoring or sequestering emissions.”

It is a well-known fact that cadres of highly paid lobbyists representing ExxonMobil and the American Petroleum Institute fought hard against the so-called Waxman-Markey bill, a comprehensive legislative proposal before the Congress in 2009 that passed the House but was not brought up in the Senate. The American Clean Energy and Security Act, if passed, would have established a broad cap-and-trade scheme and required cuts in carbon dioxide emissions across the board. Oil, gas, and coal companies were vehemently opposed to this, and used vast resources to defeat the proposal — the only major climate bill to have real legs.

ExxonMobil’s formal position supporting a carbon tax grew out of its opposition to a cap-and-trade scheme. While many have praised the oil giant for adopting a more enlightened policy position, it is probably more accurate to say that the company’s leadership is hedging its bets and using its support for a carbon tax to help fend off stricter public policy solutions. It is also quite likely that corporate accountants have found a way to make this a win-win, monetarily, for ExxonMobil. Consider this statement regarding the company’s stated concern about regressive taxation:

“If policymakers do move to impose a cost on carbon, we believe that a carbon tax would be a more effective policy option to reduce greenhouse-gas emissions than alternatives such as cap-and-trade. And to ensure revenues raised from such a tax are indeed directed to investment, and to assist those on lower incomes who spend a higher proportion of their income on energy, a carbon tax should be offset by tax reductions in other areas to become revenue neutral for government. It is rare that a business lends its support to new taxes. But in this case, given the risk-management challenges we face and the policy alternatives under consideration, it is our judgment that a carbon tax is a preferred course of public policy action versus cap and trade approaches.”

In other words, ExxonMobil is looking for a zero-sum game in which a carbon tax would be offset by tax benefits, and the cost to the company would essentially be nil.

How was ExxonMobil Talking about Low-Carbon Renewable Energy Options
The company’s 2013 10-K report says this about renewable energy, referring to it as “alternative energy” that has more negative connotations in the energy business world than does the word “renewable”:

“Government sponsorship of alternative energy. Many governments are providing tax advantages and other subsidies to support alternative energy sources or are mandating the use of specific fuels or technologies. Governments are also promoting research into new technologies to reduce the cost and increase the scalability of alternative energy sources. We are conducting our own research efforts into alternative energy, such as through sponsorship of the Global Climate and Energy Project at Stanford University and research into liquid products from algae and biomass that can be further converted to transportation fuels. Our future results may depend in part on the success of our research efforts and on our ability to adapt and apply the strengths of our current business model to providing the energy products of the future in a cost-competitive manner.”

ExxonMobil’s attempted venture into the use of algal biofuels would allow the company — if successful — to continue to use much of its existing infrastructure. But in March 2013, the company announced it was pulling out of a $600 million project to make motor fuels from algae, a joint venture with Synthetic Genomics Inc., less than six years after the project began in July 2007. In a March 7 interview with Charlie Rose, Tillerson revealed that it would be about another 25 years before they could develop a strain of algae that could produce enough oil to supply a refinery.

Notably, it was during this same interview with Charlie Rose that Tillerson famously said:

“My philosophy is to make money. If I can drill and make money, then that’s what I want to do.”

 

 

In 2013, What Did We Know About Carbon-Emitters?
In November 2013, an industrious climate researcher and author named Richard Heede, head of the Climate Accountability Institute, published a watershed scientific paper in Climatic Change. The study presents a quantitative analysis of historic records for major carbon dioxide emitters worldwide, over a period starting in the 1850s – at the dawn of the industrial revolution – through 2010. The vast amount of data Heede meticulously excavated and organized revealed a stark reality about carbon majors that surprised many: a mere 90 companies were responsible for two-thirds of human-caused greenhouse gas emissions worldwide. This watershed, painstaking analysis traces emissions totaling 914 gigatons of carbon dioxide-equivalent — which amounts to 63% of the cumulative worldwide emissions of industrial CO2 and methane between 1751 and 2010 — to 90 so-called “carbon major” entities worldwide. Astonishingly, half of these emissions had occurred since 1986!

The Guardian was the first out of the gate with full coverage of the study, and included several of the whizbang downloadable graphics and images Heede provided as part of the project. Note the relative size of the Exxon Mobil circle on the graph below; Heede found that the company and its predecessor entities were responsible for 3.22% of cumulative global emissions from 1854 through 2010. The only other investor-owned oil company emitting more carbon is Chevron Corporation, which was responsible for 3.52%.

Heede also published these findings in a report, Carbon Majors: Accounting for carbon and methane emissions 1854-2010 Methods & Results Report, commissioned by two major international organizations, the Climate Justice Programme based in Sydney, Australia, and Greenpeace International based in Amsterdam.

Is it likely the corporate leadership at ExxonMobil was completely unaware of this major study, implicating it in a share of the climate change burden on the world? Doubtful.

What Did the Climate Denial Force Look Like in 2013?
The groups that set out to obfuscate the scientific findings around the climate change problem back in the 1980s had largely succeeded in creating a constellation of organizations that would become a permanent presence in the climate change landscape. In 2013, the Union of Concerned Scientists published a document listing these groups which it refers to as “skeptic” organizations; a term CSPW takes issue with, as healthy skepticism is a lynchpin in the scientific process — without it, peer review would be a fruitless exercise. The UCS web page, “Global Warming Skeptic Organizations,” lists all the groups that take oil industry money to spread propaganda about the climate change threat and the underpinning science. The American Enterprise Institute, Americans for Prosperity, the American Legislative Exchange Council (ALEC), the Competitive Enterprise Institute, the Heartland Institute, the Heritage Foundation, and a few others are profiled. The “global warming denial machine” was alive and well in 2013, and continued to have an impact on public opinion regarding the seriousness of the problem.

Moreover, some truly ridiculous statements were being made about climate change by people who had a voice in American discourse and a responsibility not to say such things. The June 2013 issue of Rolling Stone published some of these utterings, several made by prominent elected officials, in its funny article, “The 10 Dumbest Things Ever Said About Global Warming,” just as likely to draw tears as it is to invoke laughter. Yet, this was part and parcel to the groupthink at the time, and in many ways, still is: sad, but true.

High Marks to the Obama Administration for Taking on Climate Change Impact Preparedness
In 2008, Climate Science Watch called for the US federal government to take on a National Climate Change Preparedness Initiative. On November 1, 2013, President Obama signed an Executive Order doing just that. As CSW founder Rick Piltz noted at the time, the order, “Preparing the United States for the Impacts of Climate Change,” was long overdue. Piltz stated:

“It has taken 25 years – since the global warming problem was first recognized as a major public issue — to get to this stage, with climate change preparedness planning and action being framed as a U.S. presidential order to the Executive Branch.”

One can only imagine the extent of lives saved, habitat spared from destruction, property damage avoided, if such an initiative had taken hold decades earlier. The failure to prepare adequately for climate conditions has imposed a heavy cost, one that only goes up over time.

While this Preparedness Initiative only went so far, and never truly took a strong hold on local, state, or federal public policymaking, it is an idea that should be supported and expanded, not abandoned as the Trump Administration has clearly done.

In sum, the Exxon Mobil Corporation has not been taking the climate change threat seriously enough to do justice to its investors and shareholders. Old-school mentality dominates the corporate culture, and has been articulated clearly year after year in its 10-K reports to shareholders. The truth about climate change is now coming back to bite this oil giant.

 

CSPW Senior Climate Policy Analyst Anne Polansky has 30 years of experience in public policies relating to energy and the environment, with a strong focus on climate change and renewable energy. She is a former Professional Staff Member of the House Committee on Science, Space and Technology.

This entry was posted in Assessments of Climate Impacts and Adaptation, Attacks on Climate Science and Scientists, Climate Change Education and Communication, Climate Change Preparedness, Climate Science Censorship, Climate Science Watch, Energy, General, Global Climate Disruption and Impacts, Global Warming Denial Machine, Obama Administration, Science-Policy Interaction, Scientific Integrity. Bookmark the permalink.