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Short-Sighted Energy Companies

[ 37 ] June 30, 2011 |

I have long had tremendous difficulty understanding the opposition of fossil fuel companies to new fuel technologies. For instance:

The oil and gas industry gave astrophysicist Willie Soon more than $1 million over the past decade to fund publications that challenge man-made climate change, according to a report released today by Greenpeace.

Soon is a popular figure among skeptics for his assertions that the sun, not greenhouse gases, affects global temperatures. He works at the Harvard-Smithsonian Center for Astrophysics, where energy companies have exclusively funded his research for the past five years, says the report. He could not be reached yesterday for comment on the report.

Among the companies that have provided grants to Soon is Exxon Mobil Corp., which pledged in 2007 to discontinue funding for groups questioning climate change. Greenpeace obtained documents from the Smithsonian observatory through a freedom of information request showing that Exxon gave four grants to Soon totaling $335,000 between 2005 and 2010.

The company said publicly in 2007 that it would stop funding groups “whose position on climate change could divert attention” from developing responsible energy sources.

There’s a huge amount of money to be made in clean energy. Why don’t the oil, natural gas, and coal companies follow the model of T. Boone Pickens and realize that they can also take the lead in developing these new sources of energy, potentially reaping enormous profits?

Their actions seem shockingly short-sighted to me and make me wonder about their long-term viability as powerful corporations. I suppose the strategy is to double-down on our dependence on fossil fuels, thus raising the prices over the long-term, but someone is going to come along and make some serious bucks on alternative energy. There’s no reason it shouldn’t be ExxonMobil. At least, that’s what I would tell their shareholders if I had the chance.

Comments (37)

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  1. The structure of corporate compensation in this country gives corporate chieftains an incentive to prioritize short-term stock value fluctuations over long-term firm profitability and even long-term stock value growth.

    • NonyNony says:

      I was going to make essentially this point, but probably with more mocking in my language.

      There’s no incentive for the folks who run the company to prize long-term corporate viability over short-term profits. And, in fact, everything in the system is rigged the other way.

    • Kurzleg says:

      Dammit, Joe, you always beat me to the punch!

    • DrDick says:

      I would add that this plays into what I am talking about in mine below. I cannot speak for the other oil companies, but at Phillips the change in priorities reflected a change in leadership. More importantly, where in the company the CEO was drawn from (back then they still promoted from within). All of the previous CEOs had been drawn from the exploration and development section or were engineers from the R&D branch. The new guy was from the financial side (as have been all subsequent CEOs).

      • Interesting.

        How’s this for a solution to our problems: MBA programs stop admitting anyone who doesn’t have another masters degree, or at least ten years working in a field other than business administration.

        • DrDick says:

          How about we simply shut down all the MBA programs? The actual evidence is that for the most part they destroy value rather than creating it. They certainly have been a major driver in the obsessive focus on short term profitability rather than sustainability (there are a number of other factors driving this as well, particularly demands by the rentiers and allied institutional investors).

    • Davis says:

      The same is true of mergers, where the people who will benefit the most, management, the board, and investment bank, get to decide if it’s a good idea.

  2. DrDick says:

    This actually gets wierder. My father was a research engineer for Phillips Peteroleum Co. and in the late 70s, the oil companies were all intensely looking at alternatives and spending money on research since they knew the oil reserves were going to run out in the foreseeable future. Of course they started backing off all of that in the 80s, leading my father to take early retirement.

  3. mpowell says:

    I think they’re probably fighting clean energy at the same as they invest in it. A new field can lead to upstarts winning big victories, so they’d prefer the status quo. But that doesn’t mean they aren’t hedging. Does anyone know how much Exxon is investing in alternative energy?

    • DocAmazing says:

      BP has made big investments in alternative energy over the past decade. They also wrecked a big piece of the Gulf of Mexico.

    • Tyto says:

      Right. The CFC phase-out opposition model. Howl and bray that it will skyrocket prices, hose consumers, and possibly kill the industry, then introduce your new product, with no significant effect on cost, the day after the opposed regulations go into effect.

  4. M. Bouffant says:

    I’ve always assumed the oil-igarchs are the kind of people who stand directly downwind from a campfire, & seem to enjoy it.

  5. Norman....- T.homasThe Socialist. says:

    Yes, the energy companies are just stupid and you, not they, know where the $$$ will be in the future.

    Let’s drop the faux cheerleading over non-existent green energy and green jobs. The technology is just not there to compete with fossil fuels. Obama’s grand idea is to make energy prices “necessarily skyrocket” to make them more competitive. Of course, this will cause hyperinflation as all goods and services costs also skyrocket.

    Not Smart for a fragile economy….not smart

  6. greylocks says:

    As long as drilling is taxpayer-subsidized and both the states are fed are giving away cheap leases, while R&D into alternative energy sources is at best a straight line tax deduction which has little or no impact on their actual tax liability, there’s no incentive at all for them to change the way they do business.

    • The tax expenditure for oil drilling that drives me up the wall is the ability to write off oil deposits as depreciating assets. Of course, the reason the “asset” in question depreciates is because you pump it out of the ground and sell it at a profit.

      • Malaclypse says:

        If memory serves, it is a depleting asset, not a depreciating one. That means the cost of the oil is a Cost of Goods Sold, which puts oil/extraction in line with other manufacturing industries.

        I may be mis-remembering, as it has been a very long time since I took Accounting 200, and I have no industry experience at all with any extractive industry. But I thing you are incorrect.

        /taking accounting geek hat off

        • That means the cost of the oil is a Cost of Goods Sold, which puts oil/extraction in line with other manufacturing industries.

          Other manufacturing industries have to pay vendors for their materials, no?

          Disclaimer: IANAAccountant.

          • Malaclypse says:

            In all of the above, Inventory is capitalized on the Balance Sheet, and reduced as used.

            Oil fields cost money to develop, that cost is capitalized, then depleted as used. There is a lot to criticize oil companies for, but this really is in line with Generally Accepted Accounting Principles.

            Whenever you have a cost, you need to debit something…

            • It’s my understanding – so, probably a mistaken one – that they get to deduct the costs of what they spend developing the field, and also write down the “depleting resource.”

              I get that the money they spend finding the oil and constructing the drilling rigs is a cost, but how is the “depletion” of the oil also a cost, when they’re selling it?

              • Malaclypse says:

                *If* I remember right – and like I said, I’ve never done any work for extractive industries – the cost of development is capitalized (just like, for GM, the cost of building cars is capitalized as inventory), then depleted as used. The idea is that you are matching the cost with the revenue.

              • Malaclypse says:

                Now, there is such a thing as accelerated depreciation, where GAAP and tax depreciation differ. I honestly don’t know if there is a depletion equivalent. This is a complicated, boring topic. There is what I think is a good reason these two should differ, if anybody really cares about this.

  7. Njorl says:

    I don’t understand your logic. If oil companies did want to make money by investments in new energy producing technologies, it would make sense for them to eliminate funding for competition. The federal subsidies involved are peanuts compared to the oil companies’ bottom lines, but they are peanuts which make it possible for other players to get in the game.

    It is also true that the first response to genuine acceptance of a need to do something about climate change would be measures to drastically increase energy conservation.

    Regardless of what oil and coal companies invest in, climate change denial is in their economic interest.

    • JRoth says:

      A really really big chunk of it is cultural. My dad worked his entire career for Exxon, from ’67 to the beginning of ’00 (it was ExxonMobil for his last month there, iirc). He started at the Exxon Bldg in Rockefeller Center; by the time he was done, there was a rump office in NJ, but everyone else had moved to Houston. And that geographical shift reflected a very real cultural shift.

      In short, as time went on, the company (and the rest of the industry) became more and more dominated by Texans, with all the cultural baggage that implied. They hate hippies, they hate hippie alternative energy, and they hate being blamed by hippies for ruining the planet. Lee Raymond was a disastrous CEO in a lot of ways, but he never apologized to the hippies for Exxon Valdez, so he was good in the eyes of the good ol’ boys (worth noting that he himself was from the Great Plains/Upper Midwest).

      A lot of the execs there embody the “it’s hard to get a man…” line; believing the science of climate change turns them into villains, so they choose to believe otherwise, and then act accordingly. Even my dad (who was a mid-level corporate planner most of his career, compiling forecast data on supply and demand for Latin America and Europe) could fall victim to this; he was pretty dismissive of the idea that the CA energy crisis of ’00-’01 was the result of bad actors, but it was in fact classic Texas energy company corruption and, frankly, evil. They’re bad people, they’ve always been bad people (see Ike’s comments about them), and they’re some of the most important people in our country.

  8. BKP says:

    I think your problem is assuming that government won’t direct subsidies into completely opposite channels.

    It really doesn’t matter which way they attempt to shift public opinion, just as long as they raise alarm.

    • DrDick says:

      Not really intending to be rude here, but WTF does that even mean?

      • Brad P. says:

        It means that they can constantly work to maintain their current market positions and oil and gas subsidies without jeopardizing their position to reap the benefits of pioneering (as conservatively as possible) alternative fuels.

        They don’t have to compete with upstarts, and they don’t really want to compete with each other in any real sense, so they are the only game in town. Perversely, funding anti-climate change movements probably pays for itself in the extra funding it would likely generate for alternative fuel investment.

        Basically, they’ve got the investment dollars and subsidies on lock down. I would imagine they are far more worried about public awareness.

    • Malaclypse says:

      I think your problem is assuming that government won’t direct subsidies into completely opposite channels.

      If that means government directs subsidies towards zero or low-emissions energy, I’m okay with that.

  9. JRoth says:

    Meanwhile, it’s pretty clear that there’s nothing about being a huge, profitable American corporation that keeps you from pursuing disastrously short-sighted policies; see GM, which had an incredible opportunity in the mid-00s to take their SUV profits and plow them into righting a company that had been flailing just a few short years before. Instead, they decided that they’d found the goose laying the golden eggs, and forgot about other aspects of their business.

    In fairness, this isn’t 100% accurate; from somewhere in the ’90s on, there was continuous improvement in all aspects of GM’s carmaking, but it was all incremental, often wrongheaded (the Opel-derived Malibu of the 90s was a decent, if dull car; the Opel-derived Catera was a comically stupid and unsuccessful one), and never transformative. And that’s why missing the opportunity presented by big SUV profits was so stupid; here was an opportunity to take lottery winnings (they’d been making the Suburban for 80 years; suddenly, they were selling at a huge clip, and huge margins) and use them to make some hard choices and big investments, and instead they decided to buy more lottery tickets.

    If ExxonMobil wanted to, they could take their massive profits of the past few years and drive Big Coal out of business: lobby for green electricity subsidies and against coal, all the while building the 100 square mile solar arrays in Arizona that we all dream of. It would hardly dent their oil income, and it would present a financially sustainable income source for the future. But class solidarity with other extractive industries means they’d sooner invest in salmon fisheries, or Beanie Babies.

    • see GM, which had an incredible opportunity in the mid-00s to take their SUV profits and plow them into righting a company that had been flailing just a few short years before

      In 2004, Chevy announced “An American Revolution,” featuring ten all-new cars.

      No hybrids, no electrics. 2004.

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