Do We Need Oil Companies to Combat Climate Change?
My gut instinct was to reshare the post, but I couldn’t figure out whether or not I agreed, or how I wanted to recaption it. Then I realized it didn’t matter. Whether we like it or not oil companies are already participating in the energy transition. So perhaps rather than asking ourselves whether we need their help we should consider: What are the pros and cons big oil’s participation in combating climate change and how can their influence be managed to avoid the pitfalls free market development?
“No the world doesn’t” is over simplified.
Comments by 350 dot org’s followers were largely similar to the original posts sentiment saying “No thank you,” “Only if they stop drilling for oil,” and “Only if they give back profits made from ruining the environment.” These reactionary statements are natural responses to a triggering meme but they trivialize the role of the consumer in oil production and the global energy demand that drives Shell’s profits. Catchy headlines and flippant comments like these are the hallmark of social media, aimed at inciting strong reactions to keep people addicted to scrolling. However, like many things on social media, the role of oil companies in the energy transition is more complicated than what can be captured in a couple of tag lines.
Oil companies are top among the list of 100 entities that account for 71% if all Greenhouse Gas (GHG) emissions between 1988 and 2015 according the the Carbon Majors Database Report from 2017. Many are quick to condemn them as evil polluters. While it is easy to hate oil companies, we are also quick to overlook or minimize our dependency on fossil fuels. Just this week people across the southeast are panic buying gas in response to a pipeline hack and shutdown, a reflection on our reliance on oil and ingrained dependency.
Regardless of their motives and messaging to the media, oil companies have begun to participate in the energy transition. European giants Shell and BP are commended for starting the transition earlier while American majors Chevron and Exxon are lagging in comparison.
Arguments can be made both for an against their participation. Ideally it could be helpful if integrated as part of a bigger plan, but their participation could be highly detrimental if left unregulated. Here are some thoughts for and against.
We need all the help we can get:
- Their money would help — Oil companies control a huge amount of capital, with 2019 revenues ranging from $140- 424 billion for the top ten. These are an order of magnitude more than the top ten green companies with revenues of $1.2 to 35 billion. For context, Shell has committed to invest $2–3 billion annual investment to renewables. If oil money is invested in green energy and new technology it will help progress the energy transition. This would cause change to come faster than it would if that money continued to be invested in fossil fuel extraction.
- They made the mess so they need to clean it up. — Yeah right. Ideally this would be the case, but it is wishful thinking. Oil companies should take responsibility for their impact, however, they are not going to. They are corporations, and they strive to make money for their shareholders above all else, therefore they only do things that are in their economic interest. Claims made eluding to moral obligation are green washing and wishful thinking. Unfortunately they don’t need to do anything because no one is making them.
Say no to big polluters:
- They’re only going to make things worse. — Many believe that oil companies are polluting giants and that they are wholly responsible for the impacts of their business on the climate. While this overlooks the responsibility of all of us as consumers and as a society, it is clear that oil companies have been pushing moral and environmental limits for centuries (BP Oil Spill, Exxon Valdez, Shell in Nigeria, Richmond vs. Chevron) to benefit their bottom lines. There are no indications that they are going to change their behavior. If they take the reigns of offshore wind development who’s to say they won’t pollute there also? More generally, it would be in the common interest for governments to get out ahead of new energy regulations to avoid future environmental catastrophes (sea bed mining, lithium mining, offshore wind etc.)
- Free market capitalism vs. planned and intentional solutions — Allowing oil companies to dictate how and where money is spent will continue to perpetuate their interests rather than doing what is best for the greater good. Oil companies are driven by free market capitalism. Their efforts are going to be focused on their own bottom line, not what is best for the greater good. Longer term impacts will be overlooked for short term gains. Oil companies have controlled the narrative of technology development in the past. Oil companies supported manufacturers in countering electric car development in the 1990s. More recently they have been protesting emissions regulations and attacking subsidies. Combined these efforts have resulted in the extensive gasoline infrastructure and dependency we have today although oil companies have recently begun investing in electric vehicles.
- Unequal economic development — Oil companies controlling the narrative would led to an imbalanced distribution of the economic benefits from the new energy transition. For example, Shell is already investing in offshore wind development along the eastern seaboard of the US but they are not moving personnel from the Gulf Coast to staff their projects. They are not retraining their workforce, instead they are just hiring cheaper workers in new locations. This is forcing workers to pay the price of learning new skills. While this is great for the economies of New Jersey and Massachusetts, it is leaving behind workers along the Gulf Coast, accentuating the economic imbalance already existing between states.
Ultimately it doesn’t really matter whether their money is enticing enough to outweigh the possible downsides of their involvement, they’re already playing the game. Whether or not we “need” oil companies to combat climate change we “need” to do something to influence how they participate. If oil companies are allowed to use the guise of market capitalism to guide the energy transition it’s going to be skewed toward the solutions and technologies that have the highest profit margins for them, and not necessarily those that have the most benefit for the planet and its inhabitants.
The proverbial train has left the station. Shell’s energy transition plan, which is outlined with flash graphics on their website, aims to achieve net-zero emissions by 2050 and was presented to shareholders in April. Exxon has pledged to spend $3 billion in the next five years. Chevron recently announced new targets after exceeded previous commitments early and is asking shareholders to support reducing Scope 3 emissions.
Now that these “promises” have been made, the question is how these goals will be reached, and which technologies will be at the forefront. Rather than admonishing these companies for trying, as the initial Instagram post does, instead we should accept that they are going to continue to strive to benefit their bottom lines. We should focus our attention on directing their actions in ways that are most beneficial to the greater good and least detrimental to the environment.
Determining how oil companies enact their climate ambitions is going to require new ways of governments and corporations interaction. With giants already investing and initiating projects, direct action and regulation is needed if progress is to be guided in a productive direction, avoiding the pitfalls described above.
While this is not an exhaustive list, some ideas for possible solutions or avenues for regulation include:
- International Restrictions — Blanket sanctions / restrictions placed on all of the Top 100 polluting companies forcing them to start offsetting their impacts. This is somewhat difficult given the international and globally integrated nature of business but not impossible. These would need to perhaps come from the UN or a climate accord and be adopted by countries around the world.
- Governmental Restrictions — Country specific restrictions and regulations regarding new energies investment. For example, if you want a permit for an offshore wind installation and your carbon footprint is greater than a certain threshold you have to follow some set of rules. This could backfire and discourage investment or make the margins too small for it to be attractive to big oil companies who competitively scope new renewable energy projects against traditional oil and gas projects which have fairly high returns on investment.
- Eliminate Subsidies — The most pressing thing to do in the US is get rid of tax breaks and subsidies for oil and gas companies. This is already in the works in Biden’s Made In American Tax Plan, released in April 2021 which is expected to target $35 billion subsidies. The Biden Administration already revoked the permit for the Keystone XL Pipeline and restricted new leases for drilling on federal land. Forcing oil companies to compete in a fair market would immediately and dramatically change the way they do business reducing the profit margins of oil and gas projects relative to new energy projects. Unfortunately, these changes are likely to face strong resistance in Congress.
- Increase Incentives — Incentives could be offered, but this risks trading one type of tax break for another. Efforts such as “Transition Bonds” have largely been ineffective thus far, suggesting a reluctance of companies to commit to financing green energy and transition projects. Not my area of expertise, but worth pondering.
Let’s focus our energy on enacting meaningful policy and regulation rather than letting social media incite us and distract us from making any real progress.