Former ExxonMobil Engineer Says Oil and Gas Companies Can and Should Plan to Be Part of the Solution to Climate Change

May 29, 2018 | 9:22 am
Roy Luck/CC BY 2.0 (Flickr)
Kathy Mulvey
Accountability Campaign Director, Climate & Energy Program

Former ExxonMobil executive Bill Hafker

At first glance, I don’t have a lot in common with William (Bill) Hafker. He is an environmental engineer who spent 36 years working for ExxonMobil. I am not an engineer, and I’ve spent nearly 30 years holding companies like ExxonMobil accountable to consumers, shareholders, and the public at large. So I was intrigued when I learned that Bill believes that oil and gas companies should be increasingly active and transparent in identifying and committing to meaningful climate action, and should incorporate climate planning into their traditional business planning.

Bill shared with me his op-ed on CNBC, as well as a paper he will present at next month’s annual conference of the Air & Waste Management Association. Ahead of the ExxonMobil and Chevron annual meetings tomorrow, I had a chance to talk with him about his proposal for credible two degree Celsius (2°C) climate planning in the petroleum sector.

Here are some highlights of our conversation.

Is it fundamentally impossible for an oil and gas company to rise to the climate challenge and become a lower-carbon energy company?

The industry was primarily kerosene when it started, but then we didn’t need kerosene anymore. Thanks to the demand for gasoline and diesel to fuel cars, companies survived and prospered despite the loss of the kerosene market. And now oil companies are becoming, in large part, gas companies. And if in the future, electricity by hydro, solar or nuclear becomes the thing, these companies can do that. They’re technically savvy and financially capable of becoming fully integrated lower-carbon energy companies. What is probably impossible is for oil and gas companies to transform without the support and collaboration of investors, governments, non-governmental organizations, and other industrial sectors.

Why is it important for major oil and gas companies to make and disclose 2°C plans?

It is important that these companies prepare and annually release credible 2°C climate plans for at least two reasons. First, their operations, but more significantly, the use of their products, contribute half of global carbon emissions, and so their business decisions play a vital part in efforts to reduce greenhouse gas emissions.

Second, all stakeholders—including investors, regulators, and consumers—need such a plan in order to make informed decisions about the company’s environmental and business performance. In the United States in particular, now that the Trump Administration has expressed its intent to leave the Paris Climate Agreement, it is critical that companies, especially those that voiced their disagreement with that decision, outline how they intend to proactively help progress the agreement’s goals.

Credible 2°C climate plans that describe greenhouse gas emissions reduction targets, with specific actions and projections of results over time, deliver that information.

How would investors use credible climate plans published by oil and gas companies?

If all the fossil fuel companies produced credible climate plans containing the same type of information, then investors would be able to compare them on an apples to apples basis. Investors could analyze companies’ projections for carbon emissions, proposed actions to reduce emissions, and, importantly, the time frame over which companies propose to take those actions.

Oil and gas companies plan their business for decades into the future. A business plan could show that Company A set a goal of reducing emissions by X percent by 2025, has money in place for identified projects and new purchases of solar, and plans to get out of higher carbon intensity sources of fuels like oil sands. Company A should also project out to a more distant date, perhaps 20 years, so that along the way investors could assess the company’s progress against its reduction projections. Company B, on the other hand, might set a less ambitious 2025 goal or be only be halfway there by then, not have identified any steps to close the gap, and be continuing to say the same things. Assuming both companies demonstrate solid financial performance, I would expect investors to choose Company A because it has shown it can deliver environmentally as well as financially.

What are the key ingredients of a credible 2°C plan for an oil and gas company—and what are the biggest gaps in the 2°C reports you’ve seen so far?

The key ingredients are the same whether for an oil and gas company or any other company or entity such as a municipality, state, etc. The critical starting point is a complete and accurate inventory of operational greenhouse gas emissions and a transparent discussion of emissions from the use of sold products. Following from that should be the establishment of a greenhouse gas reduction target calibrated to quantify the company’s contribution to the Paris Climate Agreement goals. The plan must then describe specific actions to be taken to achieve the target, including projected emissions reductions those actions should deliver over time. Lastly, the plan must assess as best it can, the financial implications of its execution in order to demonstrate to investors that the company is able to deliver environmentally sound performance while remaining financially viable.

The biggest gaps in the reports are the lack of setting of targets and specific plans for how to achieve them, as well as the omission of projections that demonstrate how the planned actions deliver on the goals over time. This information is needed to assess the credibility of what to date have been largely qualitative statements of intent to contribute to reductions in greenhouse gas emissions. This would also greatly facilitate comparisons between companies on their environmental and financial outlooks, allowing for more informed purchasing and investment decisions.

What does it mean to be a “fully integrated energy company”? What are some obstacles to oil and gas companies transforming themselves into fully integrated energy companies?

A fully integrated energy company is one whose energy supply chain reflects a mix of energy products, such as solar, hydro, biofuels, etc. Such a company would be well-positioned to deliver on Paris Climate Agreement-focused emissions reduction targets—not only those related to company operations and purchased power, but also those related to use of company products.

One potential obstacle to concerted action in this direction by companies and their investors is a concern that it won’t provide any real greenhouse gas reductions. The fear is that as long as there is no reduction in the demand for fossil fuels through actions by the key sectors that use them—such as transportation and power generation—someone will supply them. As long as they are being supplied, they will be used, and the resulting greenhouse gas emissions will still end up in the environment. Government engagement through incentives and/or mandates addressing the demand sectors, for instance through tighter vehicle fuel efficiency standards, will be an important factor impacting success.

Another potential obstacle is that a company that leads in shifting its business model from fossil fuels could be less profitable, at least in the short term while repositioning itself, and that investors will punish it for lower profitability, leaving it competitively disadvantaged. Somehow the investor community must share the burden of transforming our energy system, and find ways to reward companies for becoming fully integrated and doing their part to achieve the goal of keeping global temperature increase below 2°C.

What role do you think research and development can play in helping to address the climate change problem, and why do you believe that timing is important?

The demand for energy is projected to increase substantially in the years ahead as population and overall world living standards increase. In fact, the availability of affordable energy is a primary contributor to those improving living standards. The dilemma is that fossil fuels are often chosen as the traditional, easiest, or most cost-effective approach to meet these increased demands. What is needed is research focused on how to supply affordable low-carbon energy while also reducing fossil fuel demand. Cooperative research and development efforts involving energy/fuel suppliers and energy/fuel users would be an important way to engage the expertise of both actors for win-win solutions.

It is also important to ensure that research and development efforts are targeted for near-, mid-, and long-term solutions. Advances with a small impact now are as important as large breakthrough successes decades down the road. Credible research and development efforts—and credible climate plans that incorporate them—need to show a mix of near- and mid-term efforts that likely have a lower risk and lower reward, and higher-risk, higher-reward long-term efforts. It is not credible to set a target for 2035 and suggest that it will be reached solely through long-term research and development that is not anticipated to deliver a large reduction in greenhouse gas emissions until that year.

What motivated you to publish your op-ed and paper, and what are you hoping to accomplish?

From as far back as I can recall, I had a very strong passion for the environment and the need for people to protect it. As a high school freshman, I started SOAP (Students Organized Against Pollution) and never stopped feeling that protecting the environment is a vital undertaking for the well-being of humankind.

Early last year two events that I considered very important occurred: President Trump’s announcement that the United States would withdraw from the Paris Climate Agreement, and the passage of a climate risk reporting shareholder resolution at ExxonMobil with significant support from major financial institutions (after years of similar resolutions failing). I felt that it was a critical time for major U.S. corporations to live up to their claims of being good corporate citizens by proactively filling the void that the Trump administration may create, especially since several of them had voiced support for the Paris Climate Agreement.

I wrote my op-ed because it was what I felt I could do in retirement—drawing on my unique experience of working to improve environmental performance for 36 years inside the oil and gas industry—to initiate a discussion of a framework for credible climate planning among the affected stakeholders (i.e. the companies, all industries, governments and regulators, investment firms and individual shareholders, non-governmental organizations, etc.). I did not feel I’d be adding anything to the climate debate if I merely expressed an opinion on what needed to be done without offering a description of how that could be accomplished. That’s why I prepared a paper describing eleven elements of a “Framework for Credible 2°C Climate Planning”, without prescribing how exactly to operationalize each element. It is my hope that this paper can form the basis for engaging all stakeholders in a discussion of what is needed in corporate climate planning to satisfy them and lead to the climate risk reduction desired.