Last week two other bloggers and I had the opportunity to interview ExxonMobil’s VP of Public Affairs, Mr. Kenneth P. Cohen, on the subject of climate change and a range of other energy topics. Mr. Cohen is responsible for communications and government relations, and he heads ExxonMobil’s political action committee and its foundation. The call, which took place on Wednesday, was arranged by one of the company’s PR agencies; the other participants were Carter Wood from the National Association of Manufacturers and Tim Haab from the Environmental Economics blog. I found the experience very interesting, not just for the relative novelty of being treated as a real journalist, but for what the content and setting of the conversation indicated about the changing attitude of mainstream American business towards climate change.
ExxonMobil (NYSE: XOM) has long been a lightning rod for skepticism about the science of climate change--and for those opposed to that skepticism--at least partly because of the company’s past support for organizations that questioned the growing consensus on climate change as a serious environmental problem. In our call, Mr. Cohen emphasized the company’s desire to define its position on climate change directly, rather than having it defined by others as a result of such relationships. He clarified that other organizations do not speak for ExxonMobil and rejected the notion that being against the provisions of the Kyoto Protocol makes ExxonMobil anti-climate change. He went on to say, “Unfortunately, for some individuals and groups, opposition to the Kyoto Protocol was equated with a failure to take the issue of climate change as a serious matter. We believe climate change is a serious issue and steps should be taken to reduce emissions in effective and meaningful ways.”
Speaking with bloggers—even as non-hostile a group as the three that participated in the call—appears to be just one aspect of a larger re-positioning effort, which includes a recent speech in Boston by Rex Tillerson, the company’s new CEO. While some may speculate about the timing and reasons for such a shift, I’m more interested in what it could mean for the energy industry and for creating a more effective response to the issue, especially in the US. A change in ExxonMobil’s stance on climate change could be an important bellwether for the large number of US corporations that haven’t been ready to follow DuPont, GE and others in urging the government to “take prompt action to establish a coordinated, economy-wide market-driven approach to climate protection.”
Although environmentalists and policy makers tend to focus on the public posture of corporations in such matters, it’s probably more instructive to look at how they are spending their money. ExxonMobil has an impressive track record of investing in large projects that make excellent profits for their shareholders, and it is in this area that we should look for tangible indications of a shift on climate change. I explored two aspects of this with Mr. Cohen, the first relating to how the risks of climate change were factored into capital project reviews. I was somewhat surprised to hear that project proposals within ExxonMobil now incorporate explicit or implicit costs of carbon emissions, but Mr. Cohen reminded me that ExxonMobil already deals with the EU’s cap-and-trade mechanism and other “current and pending environmental controls.” When I inquired how the inclusion of these risks might change Exxon’s portfolio over time, Mr. Cohen’s response reflected Exxon’s consistent view that oil and gas will remain the dominant energy sources for decades to come. He suggested that any portfolio shifts were likelier in the power sector (assuming technology breakthroughs) than in the upstream oil and gas part of Exxon’s business, which must “go where the resource is.”
This goes to the heart of how ExxonMobil apparently sees the business impact of this issue, in terms of future regulatory compliance by its core business, which is “mitigating greenhouse gas emissions through efficiency and best practices,” rather than as a new profit opportunity at this point. That will resonate with many other corporations. When I asked Mr. Cohen whether the company’s lack of alternative energy investments would handicap its effort to reposition itself on climate change, he was very clear. “ExxonMobil doesn’t invest in businesses requiring subsidies. We will invest when they can stand on their own feet.” He emphasized the potential contribution of the company’s technology efforts, such as its partnerships with Toyota and Caterpillar to improve the efficiency of internal combustion engines.
Along with the $225 million Global Climate & Energy Project at Stanford University, which ExxonMobil took the lead in launching, these are serious efforts to address both energy demand and greenhouse gas emissions, but they are in a different category from what BP and Shell are doing, devoting capital and personnel to building new businesses and gaining first-hand knowledge, not only of the technology, but of its interface with customers. In effect, ExxonMobil is foregoing the options some of its competitors are buying and plowing the money into what it does best. That’s a legitimate answer to the classic innovator's dilemma: if you can’t grow the disruptive business inside the big, established, successful business, let someone else do it outside, and then buy in when they've demonstrated its viability. It remains to be seen whether the key leaps in this area will occur within big energy companies or outside entrepreneurs. Is Exxon just sticking to its knitting, in line with its rigorous capital discipline, or is it making a conscious bet on the superiority of an external innovation model for alternative energy?
Although some might have wished for a sea change that would put ExxonMobil at the forefront of business response to climate change, bringing billions of dollars per year of capital to bear on the problem, I doubt their investors will be disappointed to see a more conservative approach. This is clearly a company that believes in markets and the signals they send. They appear to have received the signal that the cost of carbon emitted to the atmosphere won’t be zero in the future, and they are investing in technology to address that. Even if they don’t see the market telling them that the viability of the oil and gas business is in jeopardy from this issue, or that renewable energy and other alternatives are creating profitable new opportunities, it will be very helpful to those companies and policy makers who do see this to have Exxon on-side in articulating the risks of climate change and playing a constructive role in the public debate on the feasibility and cost-effectiveness of the various options available for dealing with it.
I’d like to thank Mr. Cohen for making himself available, and the folks at APCO for arranging it. I anticipate doing more of this sort of thing this year. I’d also encourage you to read Mr. Haab’s postings on last week’s interview, which cover other aspects of the discussion. (I haven’t seen Mr. Wood’s comments yet.)
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