In a first-of-its kind report released to shareholders yesterday, ExxonMobil took a “crucial step” toward acknowledging its shareholder exposure to stranded carbon asset risks, and if you haven’t heard that turn of phrase before you’re going to hear a lot more about it soon. Stranded assets refers to the fact that in order to cap global temperature rise to 2 degrees Celsius, about two-thirds of current fossil fuel reserves must be left untapped through 2050.
Unless ExxonMobil takes steps to diversity its energy harvesting operations into low and zero carbon fields, investors could be left holding the bag for stranded assets in the form of oil and gas reserves that cannot be brought to market. That’s the motivator behind Arjuna Capital and the shareholder activist organization As You Sow, which pressured ExxonMobil to release the report.
By the way, this is not an April Fool’s article. Sorry…
The ExxonMobil Stranded Carbon Asset Risk Report
ExxonMobil released the carbon asset risk report in exchange for the withdrawal of a shareholder resolution brought by Arjuna and As You Sow.
The two groups give ExxonMobil brownie points for producing the report, which is a first-of-its kind acknowledgement that there is a potential risk.
They also credit ExxonMobil for agreeing on some basic points about climate change. Here’s their summary of key ExxonMobil quotes in a joint press release (breaks added):
First, “ExxonMobil takes the risk of climate change seriously,” as do shareholders.
Second, ExxonMobil “continues to take meaningful steps to help address the risk” including “improving energy efficiency and reducing emissions at our operations,” being “on the forefront of technologies to lower greenhouse gas emissions” and a host of other actions to reduce climate change impacts.
Third, with regard to global policy to address climate change, most shareholders and ExxonMobil would tend to align:
“ExxonMobil advocates an approach that ensures a uniform and predictable cost of carbon; allows market prices to drive solutions; maximizes transparency to stakeholders; reduces administrative complexity; promotes global participation; and is easily adjusted to future developments in climate science and policy impacts.”
Stranded Assets: What — Me Worry?
However, the big fail occurs where the rubber hits the road, namely, measuring the risk to ExxonMobil shareholders for stranded carbon assets.
The two groups specifically asked ExxonMobil to measure their risks under the 2 degrees Celsius/two-thirds untapped reserves scenario, and that question was left dangling.
Rather than responding to the question, according to the two groups ExxonMobil “said it believed that any future capping of carbon-based fuels to the levels of a ‘low carbon scenario’ is highly unlikely due to pressing social needs for energy.”
Social Needs For Energy
Oh, so now we’re getting somewhere. When we hear the phrase “social needs for energy,” what we’re really hearing is the global race to tap into burgeoning energy markets in developing countries.
The race basically breaks down into two groups. One is conventional energy companies like ExxonMobil, which could take advantage of the skyrocketing demand for fossil gas and cheap diesel generators to grow their market.
The other group is exemplified by clean energy startups like Israel’s Arava Power. We got a chance to tour Arava’s solar farm at Kibbutz Ketura in the Arava region last year and speak with co-founder and Nobel prize nominee Yosef Abramowitz, who had some interesting things to say about this whole “social need for energy” thing.
Abramowitz noted that currently, diesel accounts for about nine percent of electricity generation. His company’s business strategy is to position solar power as a “diesel-killer,” and the aim of the Ketura operation is to create an exportable solar farm business model that can compete with diesel in developing nations.
In fact, while we were visiting Kibbutz Ketura the Ambassador from South Africa happened to be on site checking out the possibilities.
Speaking of the Ketura solar farm, last we heard they had hooked up with solar panel cleaning innovator Ecoppia to boost efficiency with a corps of 100 automatic, centrally operated solar powered cleaning robots.
When Will ExxonMobil Start Worrying?
ExxonMobil doesn’t seem to be in much of a hurry to start worrying about stranded carbon assets. That certainly applies to petroleum reserves, if that “social need for energy” thing is any indication.
As for natural gas, just yesterday we noted that aside from the environmental issues surrounding shale gas fracking, financial concerns and competition from alternative energy are catching up with the US shale market.
ExxonMobil doesn’t seem too concerned about that, either. The company has been hot to acquire shale assets in the US and it has embarked on a major expansion of its Baytown, Texas refinery, with an eye to tapping into the gas-to-plastics market.
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