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Exxon: late to the table, unambitious, but arguably more pragmatic

A danger exists that hastily conceived environmental policies could have negative consequences for industry, shareholders and consumers
March 17, 2021

There is a flip-side to first-mover advantage – your rivals can learn from your mistakes. I’m not sure that this applies across the board, but it is possible to err on the side – not of caution – but of haste when you’re determined to get out ahead of the field – or even be seen to be doing so.

The imperative for change may be central as to whether business decisions are taken without due consideration over their potential consequences. A schoolchild can readily understand why companies look to build market share, or reduce running costs, but it can get a little slippery when corporate decisions come about through externalities; costs or benefits that are imposed upon companies.

It could be argued that coercion has played an ever-greater part in the corporate decision-making process of late, whether it is a result of central government environmental policy, or related changes relating to institutional mandates.

We have witnessed a steady stream of pledges, not only from areas of the economy that are thought to have an outsize effect on the environment – resource companies, the steel industry, power utilities, and auto makers – but from business at large. Supply chains are being reconfigured to comply with best practice under environmental, social and governance (ESG) codes; a process aided by widespread digitalisation. And governments across the globe are intertwining their post-pandemic stimulus measures with the push towards decarbonisation.

Indeed, the Biden administration has identified climate change as one of its top four priorities, and is committed to putting the US on the road towards “net-zero” greenhouse gas emissions by 2050. It doesn’t end there. A potential ban for new oil and gas exploration licences in the North Sea is being examined by UK ministers. And the political landscape in Germany, Europe’s largest economy, is evolving as Angela Merkel reaches the end of her fourth term as chancellor. The results of the country’s first round of regional elections for 2021 suggest that the Green Party (German: Die Grünen) has become the new middle ground for many voters in Germany, adding impetus to the country’s green transition.

But regardless of political support, taxpayers and investors would be justified in asking whether renewables can realistically replace fossil fuels by 2050. The Climate Change Committee, a publicly funded body that advises Westminster on emissions targets, has stated that the UK needs to cut its emissions by 78 per cent below 1990 levels over the next 15 years if it hopes to achieve carbon neutrality by 2050 – a rather tall order.

Last year, BP’s (BP) outgoing chief executive Bob Dudley warned that it would be unwise for the oil majors to move too quickly on policy decisions to counter climate change, because their failure could conceivably put them out of business altogether. He may have a point. Regardless of all the white noise about stranded assets, two major oil price collapses in the space of six years have effectively removed billions of barrels of future production.

His successor, Bernard Looney, has certainly set out an ambitious programme for the oil major through to 2050. But it could be that its transatlantic peer ExxonMobil (NYSE:XOM) – a relative latecomer on the climate pledge front – may have taken the most pragmatic course among the oil majors, opting for investments in carbon-capture and storage technologies (CCS), while concentrating hydrocarbon production in its higher-value assets, including those held in the Permian Basin.

Exxon’s failure to implement a multifaceted emission programme may have irked some environmentalists, but industry will be looking at new CCS technologies that would enable permanent safe storage as the demand for offset crediting is expected to grow appreciably.