Martin Schneider
GHG Monitor
4/4/2014
ExxonMobil is confident that none of its oil and gas reserves will become “stranded” due to current and future greenhouse gas emission reduction policies in the U.S. and abroad, the company said this week in a report on managing climate risk that was completed as part of an earlier agreement with a shareholder group. “Based on this analysis, we are confident that none of our hydrocarbon reserves are now or will become ‘stranded,’” the report says. “We believe producing these assets is essential to meeting growing energy demand worldwide, and in preventing consumers—especially those in the least developed and most vulnerable economies—from themselves becoming stranded in the global pursuit of higher living standards and greater economic opportunity.” The company published the report as part of a March 20 agreement with Arjuna Capital and nonprofit group As You Sow, in which Arjuna agree to withdraw its shareholder resolution seeking more info on climate risks to the company in exchange for the company detailing its plans for addressing climate-related risks to its business model.
Exxon noted in its report that, “One focus area of stakeholder organizations relates to what they consider the potential for a so-called carbon budget. Some are advocating for this mandated carbon budget in order to achieve global carbon-based emission reductions in the range of 80 percent through the year 2040, with the intent of stabilizing world temperature increases not to exceed 2 degrees Celsius by 2100 (i.e., the “low carbon scenario”). A concern expressed by some of our stakeholders is whether such a “low carbon scenario” could impact ExxonMobil’s reserves and operations – i.e., whether this would result in unburnable proved reserves of oil and natural gas.” However, Exxon concludes that “in assessing the economic viability of proved reserves, we do not believe a scenario consistent with reducing GHG emissions by 80 percent by 2050, as suggested by the “low carbon scenario,” lies within the ‘reasonably likely to occur’ range of planning assumptions, since we consider the scenario highly unlikely.”
Specifically with regard to oil, gas and other fossil fuels, the report emphasizes that they will continue to play a vital role as “renewable sources, such as solar and wind, despite very rapid growth rates, cannot scale up quickly enough to meet global demand growth while at the same time displacing more traditional sources of energy.”
Exxon: ‘We Rigorously Consider the Risk of Climate Change’
In the report, Exxon said it has a long-standing process of evaluating climate risks in its long-term project planning. “We rigorously consider the risk of climate change in our planning bases and investments,” the report says. “Our investments are stress tested against a conservative set of economic bases and a broad spectrum of economic assumptions to help ensure that they will perform adequately, even in circumstances that the company may not foresee, which provides an additional margin of safety. We also require that all significant proposed projects include a cost of carbon – which reflects our best assessment of costs associated with potential GHG regulations over the Outlook period – when being evaluated for investment.” The cost of carbon Exxon uses for its planning is $80/ton by 2040, which it described as “our effort to quantify what we believe government policies over the Outlook period could cost to our investment opportunities.”
When it comes to those government policies, Exxon said it 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. We continue to believe a revenue-neutral carbon tax is better able to accommodate these key criteria than alternatives such as cap-and-trade.”
