t the end of the first quarter of 2021, as the CEOs of the three biggest U.S. oil and gas companies presented their firms’ earnings, investors fired off a range of questions about how they were addressing climate change. Investors were already familiar with the market’s view of fossil fuels and wanted to learn how they would adjust to climate change. The investors wanted to find out if carbon capture might be able to drive revenue growth and how companies view the climate-policy landscape. “We are committed to providing products to help customers reduce their emissions,” said Darren Woods, the CEO of ExxonMobil. “Across the globe we’re helping economies decarbonize.”
The conversation was very different this year. After the Russian invasion in Ukraine, oil and gas have become hot commodities. CEOs who made huge profits on their first quarter investor calls 2022 also announced large profit margins. The topic of climate change did not come up when investors called to question the CEOs. Instead investors were focused on share buybacks or dividends as ways for companies to pass on their profits.
As long as activists and politicians can remember, they have condemned this industry for trying to ignore the facts about climate change and delaying any actions to combat it. But what really moves the industry—like any big industry—is financial performance. In the years leading up to the COVID-19 pandemic, energy was the worst-performing sector in the S&P 500 stock index—a reality that slowly but surely forced leaders to question their business model. The financial revival of oil and gas has made it difficult for the industry to adapt to the reality of climate change. Money talks, and right now there’s a lot of money to be made digging up and selling oil and gas. In a complete reversal from two years prior, energy is now the best performing sector of 2022 and the only industry on the S&P 500 stock index that has seen valuations rise this year.
Many are concerned about climate change science and have raised concerns by the renewed profit. In a 2021 report, the International Energy Agency laid out a pathway for the world to meet the targets set in the Paris Agreement, which calls for limiting global temperature rise to less than 2°C relative to pre-industrial levels. Public- and private sector leaders must invest trillions in clean energy while reducing fossil fuel financing to achieve this goal. By 2050, oil production must fall by 75%. The world needs to stop investing in fossil fuels production. “The scientists tell us that if we want to have a planet that is still livable, emissions need to come to net zero by 2050,” says Fatih Birol, the head of the IEA. “If these things happen, oil demand will go down.”
These dual exigencies—an industry turning a healthy profit on its core products and the urgent need to decarbonize the global economy—have led activists around the world to ask a variation on the same question: How will the reign of oil and gas end? Another way to put it: In a free-market system where profit rules, how do you phase down a product that’s making a profit?
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Decades before climate change was a commonplace, The science behind how oil fuels warm the Earth was studied by the oil industry. They realized that their core business would be threatened by climate change as soon as 1970. In order to preserve their profits they concealed evidence and began public relations campaigns that sparked doubt among the public. They are in Black Gold, TIME’s new docuseries on the history of ExxonMobil’s denial of the science of climate change, viewers witness the oil and gas industry’s decades-long effort unfold as the planet warms. Scientists are ignored and dark-money organizations are hired to influence the public discussion. Profit was the bottom line. “It’s hard to imagine putting the fate of humanity at such risk in return for more money,” former Vice President Al Gore, who won the Nobel Peace Prize for his climate activism, says in the series.
These efforts were rewarded. Presidents Barack Obama and Bill Clinton were committed to climate policy. However, they struggled to make progress as the industry lobbying discouraged would-be supporters. The industry had unprecedented access under Republican administrations. Former executives held key posts of power and made government policy. Biden campaigned with the promise of being the most climate-friendly President. His climate plan was primarily focused on encouraging clean energy, rather than punishing fossil fuels.
Many activists view delaying action and denigrating climate change science as a crime. “From a human perspective, it is the gravest sin I can imagine,” says Christine Arena, a former PR executive at Edelman who quit in protest of the company’s work with oil and gas trade groups, in Black Gold Unsurprisingly, industry leaders don’t view it that way. Shell CEO Ben van Beurden was interviewed by me in 2019. He spoke out about the campaign that accused his company of being aware for many decades about climate change and not taking action. Van Beurden acknowledged that “yeah, we knew” and added, “everybody knew.” He went on to argue that Shell had since publicly acknowledged the science of climate change, but society had failed to act. In other words, the blame shouldn’t fall on Shell; in a free-market economy, the role of a corporation is to make a profit, and, in that context, the company was delivering just as it was supposed to do.
Indeed, when the price of oil declined and profits waned in the mid-2010s—thanks to widespread deployment of fracking and horizontal drilling—the industry all of a sudden became vulnerable to pushes for change. Protesters staged a protest at the headquarters of an oil company. Climate activists used reports about the industry’s decades of climate denial to make a moral case. Students at college pushed universities to abandon fossil fuels. Some victories were won, but the public’s perception of oil and gas has grown more negative.
This made it more difficult to attract talent to the sector and increased regulatory risk for companies. Still, nothing challenged the industry’s attitude toward climate as much as the change in tone from investors. By 2020, according to the Forum for Sustainable and Responsible Investment, some $17 trillion dollars in investment had flowed into so-called ESG -investments—short for environmental, social and governance—and executives felt the pressure to offer a positive narrative about how their companies were approaching climate. “In the world of money, everyone lives on bended knee,” Brian Thomas, a managing director at Prudential Private Capital, said at an industry conference in March. “The industry is beginning to kind of morph its behavior to reflect the concerns of its investor base, right or wrong.”
Regardless of climate concerns, investors across the board fretted about the dismal financial performance of oil and gas—the industry was failing to make money and needed to be disrupted. “The basic model is in pieces, it’s fallen apart,” Tom Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis, told me at the time. “This is an industry in last place.”
While fossil fuel companies began efforts to address climate change, the methods used varied from one company or another. However, most were insufficient and inconsistent. In an October 2021 hearing, members of the House Oversight Committee asked executives from some of the world’s largest oil and gas firms about their plans to address climate change. ExxonMobil CEO Woods cited the company’s investment in natural gas as an emissions-reducing tool. Chevron CEO Woods stated that his company will try to reduce carbon emissions in its operations.
In short, the scale of the industry’s changes doesn’t match the science. Mike Sommers (head of American Petroleum Institute) summarized the situation in his January 2022 address. Although he stated clearly that his industry must address climate change, it was clear that he would not allow the industry to shrink by default. “We reject efforts to scale back domestic production,” he said. “This is about addition, not subtraction.”
Refineries in the United States like this Chevron plant at El Segundo (Calif.) process approximately 10.5 million barrels per day.
Only a short moment ago, Russia invaded Ukraine The energy sector had an opportunity to make a change. Proponents for clean energy suggested after the attacks that this moment offered a rare opportunity to push the economy away from fossil fuels. After all, oil and gas paid for Vladimir Putin’s war efforts and left people around the world vulnerable to the economic consequences of higher fuel prices. The European Commission, the E.U.’s executive body, quickly produced a plan to wean the bloc off Russian gas with a dramatic proposal to ramp up the development of clean energy infrastructure. The policy picture on the other end of the Atlantic is not as promising. Republicans opposed to climate legislation have used the spike in oil prices to blame the Biden Administration’s climate initiatives for hurting consumers. And now the Administration is softening its climate messaging by calling for increased oil and natural gas production.
The oil and natural gas industry, even without government intervention, could have used the opportunity to take a new direction. With oil prices rising, many companies became richer and could have used the cash to fund a genuine shift towards green initiatives. Companies have mainly used the cash to pay shareholders huge dividends and to purchase back stock, inflating stock prices. ExxonMobil’s first quarter in 2022 saw it make $5.5 Billion. By 2023, the company plans to buy back $30 Billion of stock. Chevron earned more than $6 billion and said that it will buy back $10 billion before the year’s end. Shell was worth $9.1bn; its plans are to repurchase $8.5billion of shares within the first six months.
This dynamic is forcing politicians, activists and advocates to reconsider their messages. Criticisms of the energy sector for failing to address climate change may no longer resonate with consumers as much, even though they are now paying higher prices for electricity. Recent polls indicate that, while Americans still care about climate change, this issue is not at the top of their priority list. As the U.S. nears congressional midterm elections, gas prices seem set to take center stage.
The advocates turned their attention to how much profit corporations are making. The companies, these advocates say, should cut the price of their product—or else face a windfall profit tax that would take that money and return it to American taxpayers. “We need an offensive narrative: we’re just saying ‘Blame Putin,’ and they’re saying ‘Blame Biden,’” says Ro Khanna, a Democratic representative from California who is chair of the House Oversight Subcommittee on the Environment. “That’s not enough. We need to be saying ‘Blame Big Oil.’”
On the surface, the pivot to talking about the industry’s profit margin may seem like an unfortunate turn away from the urgent reality of pushing these companies to slow fossil-fuel production. It is a direct reflection of the problem the oil-and gas industry faces in addressing climate change. Profits drove the industry’s climate denial from the beginning; profits are driving investment decisions today. It will end when oil becomes a bad investment.—With reporting by Mariah Espada
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