This is the third of three posts on a recent conference call I took part in with the VP for Public Affairs of ExxonMobil, Ken Cohen, on Exxon's recent (apparent) change in positions on climate change policy. Part one deals with the background on Exxon's climate policy position. Part two lays out some of my reactions to Exxon's seemingly new position. Part three sums up with some random observations.
Some random thoughts on Mr. Cohen's responses to others questions.
Geoff Styles asked to what extent do the risks of climate change get factored into investment decisions. Mr. Cohen responded that it depends on the market. When Geoff pressed a little further and asked how Exxon could redefine their image as an environmentally responsible company with no alternative fuel/technology investments in their portfolio, Mr. Cohen's response was telling: If it were more profitable we would probably do it (or something to that affect). To me, this is important. Who better to know what is profitable in the energy industry than the world's largest and most profitable petroleum company? If Exxon were concerned that profits were in jeopardy (say from peak oil) they would be the first to scramble to find alternative technologies.
Exxon isn't in this business for a short-term profit. They are interested in sustaining their profits indefinitely. If I'm running a company that I want to last indefinitely, I am going to make sure that I know the best investments to make based on the best science. Exxon has a very limited portfolio in alternative fuels. Why? Is it because they want to wait until the wells run dry and then scramble to find another good investment, or is it because they know better than we do that there is plenty of time to use oil and worry about alternatives later? My guess is they have way more at stake than I do and they know better where to place their bets.
That's not to say that they should keep drilling and expanding with no concern for the environment. I was speaking more to the question of why they have chosen to not invest more in alternative fuels. The reason is, there's no incentive to. Alternatives aren't profitable. What will make them profitable? Either advances in technology that allow large scale solar, wind and nuclear production (which Mr. Cohen was surprisingly pessimistic about), or increases in the cost of oil production. If big increases in oil production were anticipated, a rational profit maximizing company would start investing in alternatives. Since Exxon is not investing in alternatives, I take that as a sign that they think there is a profitable, long future in oil. Since it's their future (and their stockholders), I tend to believe them. Maybe that's just me.
Switching topics, when asked (by Carter Wood) whether Exxon was forced (by environmentalists and public opinion) to remove funding from think takes that are climate change skeptical, Mr. Cohen's answer was a resounding "No!". He claims that decision was made in 2005, well before many of the reports were made public. I tend to think this was just a good PR answer. The reports may not yet have been made public, but Exxon had to know that as soon as they were made public, the reports would create a backlash. Perceptions matter to stockholders.
So what did I take away from the experience? Exxon is a company run by good business economists. They are unapologetic about their stance that profits matter and markets work. I applaud them for that. They are also realistic enough to know that perceptions matter. With the obvious writing on the wall that climate policy is coming, they have clearly made the decision that being in on the conversation is better than being the whipping post. When Carter Wood asked Mr. Cohen how he responds to critics that say this is purely a business/rent seeking decision, I wanted him to say "Who cares?" (he didn't, he was much more diplomatic). Rent seeking leads to sound economic decisions. If public opinion is such that advocating climate change policy is profitable, that's a win for everyone. Who cares if the motives are profit or environmental conscience. If the outcomes are the same, do motives matter? In this case I say no and I am glad that Exxon is in the climate policy conversation.
Now if we could just get them to revisit that whole Valdez mess...
