In response to a shareholder proposal that received a majority vote in 2017, ExxonMobil released Energy & Carbon Summary: Positioning for a Lower-Carbon Energy Future, a report outlining the potential impacts of climate change on ExxonMobil’s business through 2040. In producing the report, ExxonMobil joined fellow major oil companies Chevron and Shell, which published similar reports last year in response to shareholder proposals and engagement—Shell, Energy Transitions and Portfolio Resilience and Chevron, Managing Climate Change Risks. This post compares four aspects of these reports: the climate scenarios each company considered, opportunities the companies see in a potential low-carbon future, the companies’ treatment of the potential physical risks from climate change in their reports, climate considerations in executive compensation decisions, and the reports’ discussion of a potential carbon tax. Other energy companies, including Total, Marathon Petroleum Company, and PPL Corporation, have issued similar reports, and many others have received proposals from shareholders calling for such reports.

Climate Scenarios

ExxonMobil’s report focuses on the climate scenarios created by the International Energy Agency (IEA) to project future consumption of oil and gas in a lower-carbon future. IEA has produced several scenarios, including (1) the New Policies Scenario, which takes into account commitments to reduce greenhouse gas (GHG) emissions that have been announced by countries but not yet implemented, such as under the Paris Agreement; (2) the Current Policies Scenario, which assumes no changes in current policies; and (3) the 450 Scenario, which sets out an energy pathway consistent with the goal of limiting temperature to 2 Degrees Celsius above pre-industrial levels.

Shell’s report includes analysis on all three of these IEA scenarios and also references Shell’s scenario analysis that it published in 2013—the New Lens Scenarios—that considers several different economic and global issues such as trade protection and nuclear disarmament in addition to climate change. ExxonMobil’s report includes analysis not only on the IEA scenarios but also on the Energy Modeling Forum 27 from Stanford University, which assesses several different technology and energy models associated with various climate stabilization targets and considers both baseline and 2 Degrees Celsius scenarios. ExxonMobil took the average of the 2 Degrees Celsius scenarios it assessed to create its report. Chevron’s report focused solely on the IEA scenarios.

All three reports conclude that oil and gas will continue to be used as a major portion of the energy mix through 2040 and that all three companies are well-positioned to continue to be profitable over that time.

Climate Opportunities and Mitigation

All three reports include information on the companies’ investments in alternative fuel sources, including biofuels, wind, and solar. In addition, all three reports include information on the companies’ research and development in carbon capture and storage (CCS) technology, which includes the capturing and injection of GHGs into underground reservoirs. The reports also note the efforts that each of the companies is currently taking to reduce emissions from their own operations.

Physical Risks

The ExxonMobil report includes a section in the report on “Engineering Resiliency,” which focuses on ExxonMobil’s current and planned actions to address risks associated with “different physical environments” and “weather and natural elements.” Those actions and plans include the following:

  • Assess the location of current and future facilities to determine weather impacts. ExxonMobil provides the examples of offshore facilities being impacted by changes in wave and wind intensity as well as by ice flow patterns, while onshore facilities could be vulnerable to sea level rise, changes in storm surge, or geotechnical considerations.
  • Assess the design, construction, and operation of ExxonMobil’s facility to ensure they withstand a variety of extreme weather and environmental conditions. ExxonMobil’s report states that it uses historical experience with additional safety factors in these efforts.
  • Monitor and manage ongoing facility integrity, for example through periodic checks on key aspects of the structures.
  • Participate with major engineering societies and industry groups to assess and update engineering standards.
  • Maintain disaster preparedness, response, and business continuity plans. Detailed, well-practiced, and continuously improved emergency response plans tailored to each facility help ExxonMobil prepare for unplanned events, including extreme weather. Regular emergency drills are practiced in partnership with appropriate government agencies and community coalitions to help ensure readiness and minimize the impacts of such events.

Chevron’s report more specifically addresses potential physical impacts from climate change and includes actions that Chevron has already taken to address some of those risks, including:

  • Undertaking a global assessment of possible impacts to assets, including those resulting from the possibility of increased frequency and/or severity of storms, rising sea levels, temperature increases or decreases, and interruptions in water supply availability;
  • Participating in a joint industry project with experts at the National Center for Atmospheric Research to better understand possible changes in the frequency and magnitude of hurricanes in the Gulf of Mexico over the next 50 years and are using information from this work to support the meteorology and oceanography (metocean) design basis for offshore Gulf of Mexico assets; and
  • Working with host governments to ensure that the design basis for particular long-lived asset investments reflects views of possible metocean scenarios.

Shell’s report does not include information on the specific steps it plans to take to address potential physical impacts from climate change, but Shell’s report does note briefly that potential physical risks from climate change, such as water costs and availability, could affect its operations and that flooding/drainage, storm damage, sea level rise, and capacity de-rating could affect Shell’s assets.

Executive Compensation

The ExxonMobil report mentions briefly that executive compensation for the company takes into account climate change issues: compensation is structured to ensure that “executives consider how decisions made today will affect shareholder value a decade later; these decisions comprehend the risks of climate change where appropriate.” Executive compensation is not mentioned in either the Chevron or the Shell reports, but Shell has issued public statements that it has and will connect executive compensation to reductions in GHG emissions from its operations.

Carbon Tax

ExxonMobil’s report mentions that last year ExxonMobil joined the Climate Leadership Council, a pro-carbon-tax organization. The plan developed by the Climate Leadership Council contemplates a “gradually rising and revenue-neutral carbon tax” and a “carbon dividend payments to all Americans, funded by 100% of the revenue.” Shell’s report does not include analysis regarding a potential carbon tax, but Shell is also one of the founding members of the Climate Leadership Council. Chevron’s report mentions the possibility of a tax but does not advocate for one.