Tuesday, January 30, 2007

No Surprise: No Surprises from Exxon

(Original 1/30; revised 2/6 to add links to other participants' reports)
Here's the scoop from our conference call with Ken Cohen, VP Public Affairs, Exxon/Mobil.  Obviously, as one would expect, given his background, bio Ken Cohen is an intelligent, well-informed, and articulate spokesman for Exxon/Mobil's position on climate change.   

Cohen attempted to downplay Exxon's historic role on climate change by (a) tracing criticism of Exxon back to its opposition to Kyoto (which everyone is supposed to forgive and forget), (b) noting its defunding of CEI in 2005 (but not addressing the remainder of disinformation organizations supported by its "policy" funding), (c) pointing to its generous funding of scientific research, and (d) arguing that Exxon is energy efficient internally.  He answered criticism of Exxon by investors and investment advisers by noting that their criticism is based upon (a) and Exxon's limited involvement in alternative energy projects due to its refusal to fund energy projects that are not currently economically viable without government subsidies. 

Cohen did not foreshadow Exxon's position on any of the pending national legislative proposals -- merely noting that Exxon would study them with certain "first principles" in mind:

In our view, assessing these options requires an understanding of their likely effectiveness, scale and cost, as well as their implications for economic growth and quality of life. Within ExxonMobil, we analyze and compare the various policy options by evaluating the degree to which they:

  • maximize the use of market forces
  • ensure a uniform and predictable cost of reducing CO2
  • promote global participation
  • minimize complexity and administrative costs
  • provide transparency to companies and consumers
  • adjust to new developments in climate science and the economic impacts of policies

As Cohen analyzes cap and trade, it is a market based approach, so far so good.  However, he differentiates between "downstream" and "upstream" caps -- on whether the caps are upstream caps on energy production or downstream caps on carbon emission.  The former flunk the "uniformity" test.  Cohen also suggests that cap and trade, at least as administered in the EU, may flunk Exxon's "minimize complexity and administrative costs" criterion.  Cohen avoids taking any position by arguing that "the devil is in the details."  Similarly, when questioned about whether a carbon tax better meets Exxon's policy principles, Cohen noted that economists would argue it does, that any tax must be "revenue-neutral", and that as always "the devil is in the details." 

Cohen suggests that Exxon will need to examine current policy proposals "under a microscope."  Personally, I find it implausible that Exxon has not analyzed these proposals and has not suggestions about how they could be modified to better comply with its first principles.  Exxon is remaining uncommitted in order to be the dealmaker.

Cohen artfully stresses the need to consider costs in choosing mitigation options, pointing to Exxon's comparison of cost of avoiding a ton of CO2:
basically modifying power generation rather than the use of gasoline in light duty vehicles is far cheaper.  As to power generation, Exxon considers gas to be the cheapest option, followed by nuclear and clean coal, followed by wind -- with solar currently infeasible.  As to vehicles, Exxon considers cellulose ethanol to be most promising, although still requiring research, with conventional ethanol and hybrids much more costly.  Cohen noted that conventional ethanol has costed roughly $ 4 whereas the price of gasoline has been about $ 2.  [So it would take a pretty sizable carbon teax to shift consumers towards ethanol!!!].

Cohen disclaimed the position that developed countries should not act on climate change unless the developing countries act.  He indicated that Exxon's statements raising the competing priorities of poverty eradication, standards of living, and economic development were merely designed to highlight the reality that the developing world will address climate change with these competing priorities in mind.   But, sub silentio, he suggested that developed countries should consider these priorities in formulating climate change policy.

Cohen also stressed that alternative energy is not likely to contribute greatly to meeting the world's energy demand, without suggesting in any manner that the projected demand must be significantly reduced.

So....Exxon wants to change perception, without changing its position.  It carved out its niche as a climate change policy resister and a single bottom line evaluator of alternative energy projects.  It is seeking to modify the public's perception that it is a environmental neanderthal.  That perception is underscored by recent news about Exxon's appeal of the Valdez verdict and spills from its NY refineries (see stories from Energy 360 below).  Exxon thinks that communicating its climate change position more clearly will make public reaction more favorable.  But, that position seems to be that oil can and should remain king in transportation, that climate science remains uncertain (although they concede that some climate mitigation action needs to be taken), that it loves free markets, that we need to go slow on climate change policy ("move gradually")and that alternative energy is currently too expensive to develop.  Good luck on getting favorable public reaction to that!

Exxon, however, is not necessarily evil or stupid.  Exxon is simply betting that the best niche to carve out is: alternative energy pessimist and "go slow" advocate.  Because of its massive size, it does not need to seek to be perceived as an industry leader on climate policy -- especially because Exxon would have to dramatically change its position in order to achieve that honor.  Exxon apparently believes it can just sit back, wait, and be the dealmaker on climate change policy, and the spoiler of any climate policy it doesn't care for.

We'll see.  I think that responsible American lawmakers will be loathe to let Exxon stand in the way of a sensible climate policy.  And if Exxon doesn't attempt to secure more of a leadership position in the industry, it may simply lose its place at the table.

Here's the information Exxon provided:
climate_framework_exxonmobil.pdf
exxonmobil_climate_change_backgrounder.doc

Links to other participants:
Oil Drum:  Initial conference call report and AEI follow-up
Watthead: Initial conference call report
Energy Bulletin: Republishing Oil Drum

See these stories from Energy 360 (subscription required -- trial subscription available).

ExxonMobil Targeted Over NYC Oil Spill

            

An environmental group and several New York City politicians initiated a lawsuit against ExxonMobil Corp. on Thursday, hoping to finally stop the oil company from taking advantage of a legal loophole that has sent 17 million gallons of oil into Greenpoint, Brooklyn for the last half century.

The spill came from numerous leaks in the 1940s and 50s from nearby refineries owned by ExxonMobil, ChevronTexaco and other oil companies. It remained undetected until a 1978 US Coast Guard patrol discovered large plumes of oil flowing out from Newton Creek.

It took another 12 years before the New York state government entered into consent orders with ExxonMobil that asked the company to clean up the area. However, no cleanup benchmarks were issued and no penalties were given.

Thus far, approximately 17 million gallons has polluted over 55 acres of land in Greenpoint, destroying a local aquifer, rendering more than 50 acres of land useless and threatening all aquatic life in the region. The spill is at least 6 million gallons larger than the 1989 Exxon Valdez tragedy in Alaska.

Riverkeeper, an environmental group focusing on the protection of the Hudson River, initiated a citizen suit against ExxonMobil in 2004.

“We were looking for an aggressive cleanup. Oil was seeping through the banks of Newtown Creek and into the water while vapors were traveling towards the community and leaking through the soil…not enough was being done,” said Riverkeeper Chief Investigator Basil Seggos.

But three years later, the pollution has not stopped. ExxonMobil has been using a pumping system to siphon about 9.3 million gallons of oil from the Brooklyn aquifers, only to pump partially treated water right back into Newtown Creek.

An ExxonMobil spokeswoman said that the groundwater treatment system at the site had been approved by state regulators and that the company was “very committed” to cleaning the site.

However, Seggos said that the system they had in place was not federally regulated under the Clean Water Act. Rather, it was an equivalency permit issued in 2005 by the administration of former New York governor George Pataki.

The equivalency avoids many provisions of the Clean Water Act, such as periodic five-year reviews, an opportunity for public comment and other enforcement actions.

“To discharge [waste], the polluter has to obtain a permit. There is no such thing as an equivalency in our mind, and certainly not in Congress. [If Exxon] discharges, it has to be under the guidelines of the Clean Water Act,” Seggos said.

On Thursday, Riverkeeper filed a notice of intent to sue against ExxonMobil for violations of the Clean Water Act. Under the rules of the act, they must wait 60 days before filing a case in federal court.

Riverkeeper aims to force the company to obtain a Clean Water Act permit and pay penalties of up to $32,500 for every day of the unpermitted discharges.

Riverkeeper is backed in the suit by Borough President Marty Markowitz, New York Assemblyman Vito Lopez and Councilmembers David Yassky and Eric Gioia. Brooklyn Senator Martin Dilan will join the suit as a co-plaintiff.

“For the life of me, I can’t understand why this was ever allowed, why this spill never got more attention from the outset. I suspect, since it happened over time and in a working class neighborhood, on a dirty waterway, people didn’t give it the attention it deserved,” Seggos said.

“Exxon Valdez captured the minds of millions because you had a single event of a tanker running up on the rocks, a drunken captain, millions of birds, otters, fish killed…You lack that single event in Brooklyn. You don’t have the contaminated animals. You just have a working class neighborhood that’s been neglected by everybody for a very long time.”


       
            

Exxon Appeals $2.5B Ruling For Valdez Spill

             Not content with a ruling that halved the original verdict to $2.5 billion, Exxon Mobil Corp. has asked a federal appeals court to reexamine how much it should pay fishermen and other Alaskans for the 1989 Valdez tanker spill.

The case, which has been going on for well over a decade, is already one of the longest in U.S. history. Its resolution was delayed further on Friday, when Exxon Mobil filed a petition for panel rehearing and a petition for en banc rehearing with the Ninth Circuit Court of Appeals.

A spokesperson for Exxon did not immediately return a call seeking comment.

In March 1989, the Exxon Valdez, a tanker captained by a relapsed alcoholic, ran aground in Prince William Sound and spilled 11 million gallons of crude oil. Soon after, fishermen and other Alaskans whose livelihoods were affected by the massive spill brought a suit before the U.S. District Court in Alaska.

A few years later, a federal jury in the case imposed compensatory damages of $287 million and punitive damages of $5 billion. Exxon Mobil, which had already spent more than $3 billion to settle additional lawsuits and to clean the Prince William Sound area, quickly appealed, arguing that it owed no more than $25 million in punitive damages.

On remand, the Alaska court reduced the punitive damages to $4 billion. Once again the case was appealed, and on remand the district court entered an award of $4.5 billion.

Finally, on Dec. 22, 2006, the Ninth Circuit panel decided to take matters into its own hands. In a 2-1 decision, it reduced the award to $2.5 billion, saying Exxon Mobil’s conduct was not intentional and that the rate of punitive damages to actual economic harm exceeded what was appropriate under recent Supreme Court precedent.

“We do not accept the minimal bottom line figure urged by Exxon and properly rejected by the district court,” judges Mary M. Schroeder and Andrew J. Kleinfeld wrote in their 63-page opinion. “We do, however, conclude there is merit to Exxon’s contention that punitives should be reduced.

“Exxon’s reckless misconduct in placing a known relapsed alcoholic in command of a supertanker…to navigate the pristine and resource abundant waters of Prince William Sound was reckless and warrants severe sanctions,” they added. “The misconduct did not, however, warrant sanctions at the highest range allowable under the due process analysis.”

In his dissent, Judge James R. Browning said the $4.5 billion punitive award did not violate due process.

“If the majority is correct that we must determine whether Exxon’s conduct is more similar to one category or the other, I believe it is closer to ‘intentional malice, trickery, or deceit’ than to ‘mere accident,’” he said.

The Ninth Circuit has no deadline for deciding whether it will rehear Exxon’s appeal for the fourth time.

The case is Baker et al v. Exxon Mobil Corp. et al, case number 04-35182, in the U.S. Court of Appeals for the Ninth Circuit.             
                    

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Comments

An excellent summary and analysis of the conference call, which I participated in too. I think ExxonMobil's new public rhetoric on climate change is a little more significant than you do, Susan, because it signifies that the interminable "global warming: yes or no?" debate actually is over and the debate over policy options has begun. Considering how long the 'yes or no' debate has been raging, and just how much sturm und drang it has generated, its passing is no small thing. (For more discussion of this idea, see my take on the conference call at http://sciencepolicy.colorado.edu/prometheus/)

ExxonMobil clearly sees the writing on the wall: Some sort of regulation of carbon probably is coming, and unless they got with the program — as many major corporations, including Walmart, have done — they would lose a seat at the table when it came time to write the regs. Then they'd lose everything. So by making a strategic retreat, they get to influence the policy debate. If they employ the same kind of strategies they have used in the 'global warming: yes or no' debate, they'll make this process interminable too. And they may be able to water things down to their own liking.

So overall, Susan I think you are right in your assessment.

Tom Yulsman
Co-director, Center for Environmental Journalism
University of Colorado at Boulder

Posted by: Tom Yulsman | Jan 29, 2007 8:39:13 PM

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