Today, the Paris Agreement enters legal effect for the 97 countries who ratified the climate accord as of November 3. Now, these countries, who together account for nearly 70 percent of global carbon emissions, must make their pledges a reality.
At the same time, the pressure is on for the world's largest fossil fuel companies to rationalize their existence in a future where carbon emissions must plunge by 80 percent before 2050. ExxonMobil's energy outlook, for example, predicts that demand for oil will only increase over the next several decades. Oil, coal, and natural gas, the company says, will power 80 percent of the world's energy needs through 2040. As a result of this incompatibility, it's necessary to ask: Can the climate pact and oil producers co-exist?
While many of these companies have acknowledged the goals set forth by the Paris Agreement—some even commending them—they're still gambling on energy scenarios that climate scientists insist we cannot afford if we want Earth to remain habitable.
The international convention known as the Paris Agreement is arguably history's most ambitious effort to combat climate change. Its primary intent is to limit an increase in global average temperature through "nationally determined contributions" that hold each member country responsible for its own climate goals. If successful, the agreement will keep global average temperature well below 2°C above pre-industrial levels, and ideally prevent an increase of 1.5°C above pre-industrial levels.
This week, a collective of major oil companies, including BP, Statoil, and Royal Dutch Shell, announced they would be creating an investment fund for renewable energy technology development. In February, a spokesperson for the Organization of the Petroleum Exporting Countries, the intergovernmental organization of oil-exporting nations known as OPEC, also emphasized the importance of promoting clean power alternatives. Fossil fuel interests even sponsored COP21, an international conference where countries signed onto the Paris Agreement last year.
But despite their affirmations, for all of these companies, oil is integral to the coming century. "They can sit around in the dark and talk about how it worked out," said ExxonMobil's commercial adviser, Ken Golden, in response to nations' rising concerns about reducing their reliance on fossil fuels.
"A lot of people are looking at ExxonMobil's business model and seeing a huge gap between them saying climate change is real and predicting that oil demand is increasing," Tim Donaghy, a senior research specialist at Greenpeace USA, told me. "All of this points out a huge risk for these companies, which is if nations meet their climate commitments and change the direction of their economies, there's a huge risk to ExxonMobil's bottom line."
The trouble is, with few requirements for public disclosure, fossil fuel companies can justify their profitability without having to provide much evidence for it. Right now, the US Securities and Exchange Commission (SEC) is investigating ExxonMobil's accounting methods, looking for signs the company misled investors regarding the value of its oil reserves. In theory, fossil fuel companies should be considering the effect that climate change-related regulations—such as those coming out of the Paris Agreement—will have on their assets.
What we do know is that companies like ExxonMobil are facing the possibility of forcibly eliminating large percentages of their oil and gas reserves. In light of declining global energy prices, the company recently said that 20 percent of its assets, which are key indicators of its financial health, could be written down. What companies fear the most are these "stranded assets," which are reserves that contribute to the valuation of a company but in truth amount to no profits.
Fossil fuel prospectors have also been looking to exploit reserves in riskier and pricier locations, such as the Arctic's Beaufort Sea where hazardous ocean conditions make it nearly impossible to safely drill for oil, but even there the impact of oil prices is being negatively felt.
"As a first step, these fossil fuel companies need to start disclosing more information to investors and the public. Outlook reports aren't adequate and don't help us to assess what oil companies can and need to do," Donaghy said.
"The SEC investigation into ExxonMobil's assets is a 'stress test,' comparing the company's business model against the Paris Agreement. What's interesting about the SEC investigation is that it could actually call for such stress tests to be made public in the future."
ExxonMobil did not reply to a request for comment regarding the incompatibility of its energy outlook with the climate projections deemed necessary by the Paris Agreement.
In the past, companies like ExxonMobil have vociferously challenged the warnings of climate scientists about the dangerous effects of carbon emissions. An InsideClimate investigation revealed the company was aware of global warming as early as 1970s, when it conducted its own cutting-edge research on the subject. Since then, fossil fuel giants have systematically fought to discredit scientific research, and advance their interests through lobbying and political funding. Numerous probes launched by US attorneys general are now attempting to uncover whether ExxonMobil, in particular, intentionally deceived the public about climate change.
The Paris Agreement has set into motion events that should have fossil fuel companies questioning their long-term viability. But even with unprecedented changes to our global energy mix, some experts believe that's not enough.
In the US, President Obama vowed to reduce carbon emissions by up to 28 percent of 2005 levels as of 2025. But a study recently published to Nature Climate Change concluded that unless we expand emissions regulations beyond the ones already coming down the pipeline, that goal is unlikely to be met.
So will fossil fuel companies survive the coming climate revolution? The answer remains to be seen. Right now, members of the Paris Agreement still need to prove they can uphold their pledges because time is officially up.
Update: A spokesperson for ExxonMobil replied with the following statement on Friday, November 4:
The agreement is an important step forward by world governments in addressing the serious risks of climate change.
ExxonMobil supports the work of the Paris signatories, acknowledges the ambitious goals of this agreement and believes the company has a constructive role to play in developing solutions.
We have been working for many years to reduce emissions in our operations and provide products that help consumers reduce their emissions.
ExxonMobil continues to pursue technology solutions with leading scientists in industry, academia and nongovernmental institutions. We have invested nearly $7 billion since 2000 on lower-emissions initiatives such as energy efficiency, cogeneration, flare reduction, carbon capture and sequestration and research into next-generation biofuels.
The Paris agreement and the initial Intended Nationally Determined Contributions (INDCs) pledged by its signatories reflect the dual challenge of minimizing greenhouse gas emissions while ensuring the world has adequate access to affordable and reliable supplies of energy.
These INDCs also reflect understanding that all economic energy sources will be necessary to meet growing global demand, and that the evolution of the energy system toward lower atmospheric emissions will take time and commitment due to its enormous scale, capital intensity and complexity.
As policymakers develop mechanisms to meet the Paris goals, ExxonMobil encourages them to focus on reducing emissions at the lowest cost to society, keeping in mind that access to affordable and reliable energy is critical to economic growth and improved standards of living worldwide.
The best policy options to achieve that goal will be market-based, predictable, transparent and globally applicable to promote innovation and technology breakthroughs required to address climate change risks. ExxonMobil has for many years held the view that a revenue-neutral carbon tax is the best option to fulfill these key principles.
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