Ten miles outside New Orleans stands a two-million barrels per day oil refinery, surrounded by the Meraux, Louisiana community. On low-lying ground along the Gulf coast, an elaborate network of pipes and smoke stacks looms beyond double-wide trailers, rows of single-family homes, and a playground. By 2050, the refinery and surrounding areas could be underwater, given intermediate sea level rise estimates. But this won’t be the first time the refinery has seen high water levels.
When Hurricane Katrina made landfall, the Meraux refinery flooded. Damaged tanks spilled 25,000 barrels of oil, covering over a square mile of neighborhood and contaminating 1,700 homes. Then refinery-owner Murphy Oil paid $330 million to settle 6,200 claims, buy contaminated property, and perform cleanups.
Companies’ undisclosed climate risks
Following the incident, Murphy Oil disclosed to its investors that the refinery faced climate-related risks: “The physical impacts of climate change present potential risks for severe weather (floods, hurricanes, tornadoes, etc.) at our Meraux…refinery,” the company wrote to the SEC. But Valero Energy Corporation acquired the refinery from Murphy Oil in 2011, and Valero has yet to disclose any risks from the physical impacts of climate change to the Meraux facility. Why not?
Valero is not alone. A UCS report released today, Stormy Seas, Rising Risks: What Investors Should Know About Climate Change Impacts at Oil Refineries, models sea level rise and storm surge and finds climate-related risks at five refineries on the Gulf and East coasts. The five companies who own the refineries—Chevron, Exxon Mobil, Marathon Petroleum, Phillips 66, and Valero—have not fully disclosed these risks to their shareholders.
The physical impacts of climate change will cost companies
This is despite SEC guidance asking companies to consider and disclose climate-related risks that are material. It is despite past events that show significant costs like Katrina’s damage to the Meraux facility. And it is despite climate projections that show rising seas and strengthening coastal storms, including hurricanes, in our warming world.
Evidence suggests that climate change will lead to an increase in Atlantic hurricane intensities over the next century. There might be fewer Atlantic hurricanes overall, but the ones that do form could be more damaging. Sea levels are expected to rise faster in the next century, with some parts of the world, including the U.S. Gulf and East Coasts, expected to see even higher rates than the global average. In the Gulf, the combination of sea level rise, subsidence, and low-lying topography make the region especially vulnerable to storm impacts. At the same time, the Gulf coast hosts much of the nation’s energy infrastructure, including refineries and rigs.
“Our results were startling,” said Christina Carlson, the UCS report’s first author, “all five refineries analyzed face risks from storm surge and Valero’s Meraux facility may even be inundated by 2050 because of sea level rise alone. Investors deserve to know that.” Yet, many companies don’t disclose climate change impacts in their official reports to the SEC, where they are obligated to disclose risks to the shareholders annually.
Exxon Mobil responds
As part of our research, we sent letters to the five companies asking about this lack of transparency; Exxon Mobil wrote us back, citing their (very limited) discussion of physical climate risk in their Corporate Citizenship report and their contribution to an industry climate risk adaptation report. If the company is thinking about and preparing for climate-related risks in these venues, why not share it with their shareholders through the SEC reporting? When it comes to discussing climate change in SEC filings, Exxon Mobil—likely many companies—only discloses risks they believe they face related to carbon regulation, with no reference to the physical impacts that climate change is likely to have on their business.
Companies’ lack of disclosure will cost you too
When companies fail to disclose and prepare for climate change, others will feel the impact. Investors are exposed to undue financial risk. The public pays at the pump when refineries are shut down. And the public pays in their tax dollars when the government needs to fund loans and cleanups. And nearby communities pay when they are exposed to harm from refinery spills, accidents, and other damage. Companies owe it to these groups to be more responsible corporate actors; they should consider, disclose, and prepare for the impacts of climate change.