Crumbling Empire: The Messy Demise of the Fossil Fuel Industry
Between increasing regulations, snowballing international climate action, expanding divestments, and growing distrust, the writing is on the wall for the fossil fuel industry, even though special interests are making a nasty—but ultimately futile—last stand.
Fossil fuel companies might just look back at 4Q15 as the moment in time when they were dealt the fatal blow that finally forced them to release their stranglehold on our economy. With plunging oil prices, increasing carbon emissions regulations, and rapidly growing pressure from competitive clean energy solutions like solar, the economics of big oil are undeniably and irreparably changing.
While our global energy system will likely remain dependent on fossil fuels for decades to come (and fossil fuel companies still benefit from trillions of dollars in long-established government subsidies each year), movement towards renewables and clean energy solutions is accelerating at an exponential rate.
Advanced extraction technologies and techniques will certainly help oil and gas companies maximize remaining reserves (BP estimates that there are still 4.8 trillion barrels of recoverable oil resources in the world), but the combination of increasing emissions legislation, climate action, and growing public disenfranchisement will impact the extent to which those reserves will be used.
Furthermore, as oil prices continue to drop (the price of a barrel of oil has been cut roughly in half since June 2014), solar and wind become highly attractive, even reaching price parity (and beyond) in some US markets. The continued decline in component costs for renewable energy systems, efficiency improvements (solar panels will soon reach a 30 percent efficiency rate), smart grid evolution, and advances in affordable storage technologies to solve intermittency issues will further to enhance the economic appeal of these solutions.
Expanding regulations, like Obama’s Clean Power Plan, will also unequivocally effect the oil industry. As countries, companies, and cities set increasingly stringent emissions and efficiency targets, renewables will continue to trump fossil fuels. And, the growing interest in carbon pricing and cap-and-trade programs will further spur a transition to a clean energy economy.
Ambiguity about future policy against drilling in environmentally sensitive areas, such as the Arctic, is also wreaking havoc on big oil. Shell recently reported a $6.1 billion loss on its 3Q15 earnings (216 percent lower than 3Q14!) due to the cancellation of its exploration activity in offshore Alaska and protected areas in Canada, which was partly attributable to the vague regulatory environment.
Mounting climate action, such as President Obama’s recent rejection of TransCanada’s permit to build the Keystone XL, will further impede the oil industry. According to Obama, the decision was made so that the US could lead by example and send a strong message to the world in advance of the COP21 climate talks in Paris next month.
Fueling the crusade against fossil fuels, the industry’s integrity has recently been called into question, as stalwart Exxon Mobile faces intense scrutiny for allegedly suppressing vital information about the environmental effects of burning fossil fuels and orchestrating a falsified debate about the legitimacy of climate science.
While the company employed climate scientists and produced cutting-edge research throughout the 1970s and 1980s, in June 1988, when NASA scientist James Hanson addressed Congress about the urgency of the issue, the company quickly changed its tune.
As Exxon executives realized that their own science held enough burden of proof to result in regulatory changes, they decided that it was a better business strategy to protect the company’s bottom line as opposed to creating a balanced strategy to tackle climate issues. Exxon soon thereafter launched its campaign against reason, fabricating climate denial in the interest of profit, using its most effective weapon — money — to foster uncertainty among the masses, transforming itself from climate leader to deceiver.
As summarized by Exxon’s own hometown paper, the Dallas Morning News, “Exxon had the opportunity to lead the world toward a measured, manageable…solution.” Instead, “with profits to protect, Exxon provided climate-change doubters a bully pulpit they didn’t deserve and gave lawmakers the political cover to delay global action…. It reminds us of the days when Big Tobacco adamantly insisted that science was inconclusive about the cancer-causing effects of cigarettes.”
A spectrum of organizations and presidential candidates are actively lobbying the Department of Justice to investigate Exxon’s deliberate deception. The New York Attorney General recently launched his own investigation, issuing a subpoena to Exxon last Wednesday demanding extensive financial records, emails, and other documents to determine if the statements the company made over the past decade to investors about climate risks are consistent with the company’s internal scientific research, or if the company actively deceived its shareholders.
The investigation will certainly open a new legal front in the climate change battle, and the story will, no doubt, be riveting as it unfolds. Did the company make a prudent business decision to protect its own self-interest, or did it engage in criminal activity by thwarting preventative action against known consequences?
Exxon isn’t alone in its public scrutiny — Peabody Energy, the nation’s largest coal producer, is also under investigation for supposedly concealing evidence about the financial and environmental risks associated with its operations, and other oil companies are expected to be interrogated as a part of the Exxon scrutiny.
As the economics of big oil transform, banking and finance companies across the globe are divesting from fossil fuels and pouring money into clean energy deals. As one example, Goldman Sachs recently announced that it aims to triple its clean energy investments to $150 billion over the next 10 years.
Clean energy investments are no longer an outlier to the mainstream economy — they’re now considered relatively safe when compared to fossil fuel companies that are burdened with stranded assets that will likely result in trillions of dollars in write-downs.
No doubt, the oil companies will not go silently into that good night — they’re already launching vicious attacks against everything and anyone who stands in their way. They’re waging a futile and Outrageous War on Solar to quell the industry’s growth. They’re putting big bucks behind Presidential candidates that sing their climate denial tune. And, despite mountains of scientific evidence, they’re still trying to confuse the general public about climate change.
Fossil fuel advocates, like former BP executive Nick Butler, claim that “big breakthroughs are still the stuff of hope rather than reality.” But climate advocates disagree, believing that the combination of increasing regulation, snowballing climate action, shifting economics, and growing public disenfranchisement will bring the dirty energy industry down once and for all.
Sara Gutterman is the co-founder and CEO of Green Builder Media. An experienced entrepreneur, investor, and sustainability consultant, Sara specializes in developing companies that are simultaneously sustainable and profitable. She is a former venture capitalist and has participated in a portion of the life cycle (from funding to exit) of over 20 companies. Sara graduated Cum Laude from Dartmouth College and holds an MBA in entrepreneurship and finance from the University of Colorado.
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