Big Oil’s strategy is blocking the energy transition
Last week, ExxonMobil pledged to achieve carbon neutrality in its operations by 2050. As? It would be like Philip Morris International promising that none of its workers will smoke when making cigarettes.
Speaking of which, Big Oil’s recent greenwashing forays make perfect sense through the lens of Big Tobacco’s playbook.
With oil at $85 a barrel, neither Exxon nor its peers have any desire to sell less oil. Sure, a growing number of electric vehicle (EV) drivers in rich countries are tired of visiting the pump. Big Oil seems fine with that — if they can actually mimic Big Tobacco’s infamous pivot point.
The Big Tobacco Playbook
In 1964, US surgeon General Luther Terry published a 150,000-word report that conclusively linked cigarette smoking to lung cancer. Despite Big Tobacco’s efforts to obfuscate the science and fight anti-smoking policies, American cigarette consumption declined over the next 50 years, preventing an estimated 8 million premature deaths. Much of the developed world followed suit.
Still, Big Tobacco stock skyrocketed in the 2000s. The companies reoriented themselves to unregulated markets in developing countries. Of the 1.3 billion people who smoke today, over 80% live in low- and middle-income countries. In 2016, China alone accounted for over 41% of global cigarette consumption. Meanwhile, Philip Morris says it has a “mission to one day stop selling cigarettes”.
Today, Big Oil is playing the same game. Much like Big Tobacco, Big Oil has lost the battle between science and Western public opinion, and not because of a lack of investment in disinformation and lobbying. She acknowledges the threat of climate change but advocates an “orderly energy transition” in which oil demand in rich countries gradually falls and the rest of the world takes decades to catch up. This orderly transition will not achieve global carbon neutrality by 2050. Not for a long time.
Here’s the thing: The International Energy Agency (IEA) predicts that fossil fuel demand will increase through 2030 all around the world except North America, Europe and Japan. Chinese demand for cigarettes saved Big Tobacco as the developed world kicked the habit. Well, over 87% of China’s energy consumption comes from fossil fuels, and in 2020 the country accounted for 24% of the world’s energy consumption. It could also help save Big Oil, but in the process drive climate change into the abyss.
India is also set to double its energy consumption between 2021 and 2040, accounting for 25% of global demand growth. 80% of demand is still met by coal (44%), oil (25%) and solid biomass (13%). Big Oil sees decades of big business ahead – if it ensures this orderly energy transition.
Big promises, little responsibility
Big Oil’s tobacco-inspired strategy has three components. First, double the sales abroad. Second, greenwash at home. Third, spend generously on share buybacks rather than clean energy investments. While shareholders are hailing this strategy, it thoroughly undermines plans to achieve carbon neutrality by 2050.
Oil execs will insist I’m being too harsh! Am I not aware of their investments in renewable energy, charging stations, hydrogen and “carbon management”?
let’s talk about it, shall we?
First, notice how longtime partners — automakers and Big Oil — are splitting up. General Motors has increased its investments in electric vehicles and autonomous vehicles (AVs) to $35 billion between 2021 and 2025 — a 75% increase. The Volkswagen Group will invest €52 billion in e-mobility over the next five years – 50% more than originally planned. Toyota has similarly committed $35 billion to introduce a line of 30 electric vehicles by 2030.
Not bad. How about Big Oil now?
Consider Royal Dutch Shell. It accounted for 2.3% of global greenhouse gas emissions between 1965 and 2017, according to the Climate Accountability Institute. The IEA estimates that annual clean energy investments will need to triple to $4 trillion by 2030 if we are to achieve net-zero emissions by 2050. So Shell’s promise to increase its clean energy spending to $3 billion annually means that the company is offering to invest 0.075% of what it takes to reach net zero – one-thirtieth of its historical contribution to ours climate catastrophe.
Shell is hardly unique. Exxon intends to spend $15 billion over the next five years on hydrogen, carbon capture and storage (CCS), and biofuels, which are characterized by the lack of a high-margin business model. Exxon is responsible for 3.01% of emissions since 1965, which means Exxon’s investment is 0.375% of what it takes to reach net-zero emissions worldwide.
Big Oil will invest just enough in clean energy companies to stave off criticism — and ensure none become true competitors. Meanwhile, Big Oil is reserving its budgets for a much bigger expense: share buybacks. Shell has pledged $5.5 billion in buybacks using funds raised from the sale of Permian Basin assets. Exxon, not to be outdone, is targeting $10 billion in buybacks next year from $20 billion to $25 billion in capital expenditures. This billion-dollar thank you to its investors sends a message: stay with us and we’ll take care of you.
In the movie thanks for smokingTobacco lobbyist Nick Naylor tries to explain his job to his son Joey. “It requires a moral flexibility that transcends most people,” says Naylor. Likewise, some oil company executives have become moral yogis, gymnasts, and contortionists.
We all understand that we can’t just flip a magic switch and suddenly be carbon neutral. The world needs an “orderly energy transition” – that’s it not the way Big Oil puts its stock market performance ahead of humanity’s future.
The elephant in the room is the evolving world. Many countries believe that without cheap hydrocarbons they cannot sustain economic growth or lift their people out of poverty. That’s what the West did after all. Therefore, China and India will not limit the use of fossil fuels unless Alternative energy sources have the potential to provide plentiful, affordable, safe and clean energy.
Our greatest hope is to prove that clean energy can outperform Big Oil and the Big Tobacco playbook. For my part, I believe that clean energy innovators can make it – if governments support them with fossil fuel consumption limits, carbon markets and an end to fossil fuel subsidies. In the meantime, investors need to put their money where their ESG mouth is. Time is of the essence. Please look it up – and act!