Responding to Environmental Ethics: Moving From Petroleum to Renewable Energy for the 21st Century

A Report for ExxonMobil

Carlos Rymer MPA-Environmental Science and Policy School of International and Public Affairs Columbia University

December 11, 2008

Contents
Introduction .................................................................................................................................. 3 The Petroleum Business and Ethics ......................................................................................... 4 ExxonMobil’s Activities ......................................................................................................... 4 Petroleum and Climate Climate ........................................................................................... 6 Climate Change Ethics ........................................................................................................... 7 ExxonMobil’s Stance............................................................................................................. 10 An Action Plan: Responding to Climate Change ................................................................ 11 The End of the Carbon Era .................................................................................................. 11 A New Business Path: Renewable Energy and Sustainable Transportation............. 12 Diversification Strategies .................................................................................................... 14 Conclusions ................................................................................................................................ 15 References ................................................................................................................................... 16

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1.

Introduction
As the world’s largest oil and gas company, ExxonMobil has a significant positive impact on the lives of millions of people all around the world. ExxonMobil’s goal of providing reliable energy to the world has set it apart as a pillar of global development. At the same time, ExxonMobil’s focus on petroleum and gas products, especially those that are combusted to extract energy, has played a key role in promoting climate change through an enhanced greenhouse effect. The combustion of petroleum and gas has increased the concentration of carbon dioxide in the atmosphere to levels that are rapidly warming the planet, leading to severe consequences for the world economy and most of the Earth’s natural features. The purpose of this report is to outline why the company’s main activities are unethical and how its involvement in an effort to misinform the public about climate change in the past have tarnished the company’s moral image. In addition, the report uses the company’s unethical activities as justification for a strategic plan that will help the company not only address its moral image, but also gain a global reputation of corporate social responsibility and secure its financial viability in the 21st century through new technologies that address climate change, create jobs, and spur economic development.

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2.

The Petroleum Business and Ethics

A.

ExxonMobil’s Activities ExxonMobil is the world’s largest oil and gas company, Key Statistics with presence in all six continents. It considers its primary role • in society to be “safely [providing] reliable and affordable supplies of energy to people around the world.” It is the largest • explorer and produce of oil and gas, as well as the largest manufacturer, refiner, and transporter of petroleum and gas products. ExxonMobil provides different products and services under different brands, such as ExxonMobil, Exxon, Mobil, and • Esso. However, while it is the world’s largest producer of oil and gas, ExxonMobil only provides 2% of the world’s energy demand.1 ExxonMobil’s corporate citizenship is driven by its selfperformed materiality analysis. This analysis informs the company on the social and environmental priorities important • • • • • • • • 81,000 employees globally Exploration and production in 36 countries 2.5 million individual and 2,000 institutional shareholders 10 million daily customers 170,000 suppliers $40.6 billion net income in 2007 $21 billion in investment in 2007 4.2 million barrels of liquids and gas per day 5.6 million barrels gasoline per day of

7.1 million barrels of petroleum products per day 27.5 metric tons chemical products of

1

ExxonMobil. 2008. 2007 Corporate Citizenship Report. http://www.exxonmobil.com/Corporate/files/Corporate/community_ccr_2007.pdf. Pgs. 1-10.

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to the world based on its own outlook of energy demand. In its analysis, the company first identifies issues of concern based on its own projections for energy demand and supply. In general, the company’s goal is to provide energy around the world to improve quality of lives while minimizing environmental impact and supporting communities. Second, the company assesses any issues identified in the first step through information from various sectors, including non-governmental organizations, academia, financial institutions, and employees. Then it develops a list of material areas that the company will focus on based on its analysis. In 2007, these material areas were 1) Environmental Performance, 2) Workplace, 3) Corporate Governance, 4)

Transparency and Human Rights, and 5) Community Development.2 Based on its materiality analysis, ExxonMobil has worked in the last year to address these key areas through its primary business activities. For example, the company has reduced carbon dioxide emissions and oil spills from its own operations, trained thousands of contractor supervisors and managers on safety leadership and expectations, replaced over 100% of all its oil and gas reserves over the last five years through multi-billion dollar investments, partnered with governments in making their oil and gas operations more transparent, and invested millions of dollars in the last few years in major initiatives on health and education.3

2 3

ExxonMobil. 2008. ExxonMobil. 2008.

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B.

Petroleum and Climate Change The main product delivered by ExxonMobil is petroleum. While the company has a suite of other products, petroleum is the resource the company is most wellknown for. In particular, the refinement of petroleum into gasoline and other fuels for combustion is well-associated with ExxonMobil. Petroleum combustion for the transportation and electric sectors has been one of the main drivers of increasing atmospheric carbon dioxide concentration. The combustion of petroleum products emits carbon dioxide, the main greenhouse gas blamed for enhancing the Earth’s greenhouse effect. Already, this has led to serious consequences for the world and, given continued petroleum combustion, will lead to greater future consequences.4 The enhancement of the Earth’s greenhouse effect is rapidly warming the planet. In the last century alone, the world experienced an average temperature rise of 0.8⁰C. It is expected that under future scenarios, the global average temperature will rise between 1.8⁰ - 4.0⁰C this century. This will lead to sea-level rise as glaciers and ice sheets melt and seawater expands; more intense storms, floods, and droughts; the loss of significant biodiversity and agricultural capacity; and infectious disease outbreaks, among other consequences.5 It has been estimated these consequences may cost the world up to 20% of its gross domestic product (GDP) by the end of the century.6 As a result, ExxonMobil’s own future is threatened by its main product.

Intergovernmental Panel on Climate Change. 2007. Climate Change: Synthesis Report. UNFCCC. IPCC. 2007. 6 Stern, Nicholas. 2006. The Stern Review on the Economics of Climate Change. UK Treasury.
4 5

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C.

Climate Change Ethics Anthropogenic climate change raises several ethical issues related to living things and non-living objects. Living things include humans and all the species and ecosystems being affected by climate change. Non-living objects include glaciers, ice sheets, land, rivers and lakes, and the ocean, among other things. Since ethics concerns primarily the diversity and abundance of life,7 living things are of more immediate concern and the focus of this report. However, it is important to note that climate change does impact “the way of being”8 of many objects shaped by the Earth’s evolution, including melting glaciers, acidifying oceans, and desertifying lands. Climate change is clearly going to continue to impact living things. As the Earth’s average temperature rises, economic activity is negatively impacted, whether through sea-level rise affecting cities, stronger storms flooding infrastructure, or drought reducing freshwater availability. In addition, entire ecosystems that are not considered part of human society will be impacted as well. From the economic side, we can divide ethical considerations into economies largely responsible for climate change and economies being impacted by climate change but not responsible for it. The economies largely responsible for climate change are characterized with heavy use of natural resources and inconsideration of other humans and species. This way of lifestyle has resulted in significant carbon dioxide emissions, especially from

7 8

Gondek, Adela J. 2008. Class Notes for Ethics, Values, and Justice. Columbia University. Lectures 1-3. Gondek, Adela J. 2008. Lectures 1-3.

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petroleum combustion. It is a way of life that the world strives for but that has led to ethical issues regarding the “rights” of others being compromised because of the use of “property rights.” At the same time, the burden being shared by economies that were not responsible for climate change is significantly larger, not only because of more severe impacts, but because they have less resources to cope with the impacts. The divide between those who are at fault and those who are being impacted the most can also be linked to a pattern of global change that has been occurring over the last several decades. Climate change is one aspect of the global changes that are being witnessed as the world significantly increases its consumption of natural resources. The concept of giving future generations a world “with a few domestic plants and animals” clearly poses fundamental questions of morality.9 The “hedonistic” lifestyles enjoyed in the world’s developed economies raise questions about how we ought to live and what our relationship should be with other humans and species.10 It also presents a conflict among things we value but tend to ignore, such as valuing the living poor and the “hedonistic lifestyle” that has contributed to global inequalities.11 Not only is climate change interfering with the “rights” of other people globally, thus creating inequalities among economically different peoples, but it is also creating inter-generational inequality. The prospect of intensifying climate change resulting
Jamieson, Dale. 2003. Ethics, Public Policy, and Global Warming. In Environmental Ethics: An Anthology. Blackwell Publishing. Pgs. 371-375. 10 Gondek, Adela J. 2008. Lecture 4. 11 Gondek, Adela J. 2008. Lecture 8.
9

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from continued greenhouse gas emissions implies that future generations will have to share a greater burden of the problem than previous and current generations. This further contradicts the moral principle that fundamental equality among generations is ethical since not doing so would be interfering with the “rights” of those to come.12 Climate change threatens the survival of future generations13 by challenging any progress made in a growing urban world.14 On the other hand, climate change also interferes with existence “rights” of nonhuman species.15 From extinction to the deterioration of ecosystems and the ways of life of many species, climate change raises the question of whether we ought to not interfere with the “way” of other species. From an ethical standpoint, anthropogenic climate change immorally interferes with myriad of non-human lives, but it also interferes with the rights of humans themselves to value the rest of the world.16 Clearly, the ethics of climate change raises questions regarding whether the rights of other living things should be respected or not, or whether we should continue to fuel climate change in spite of available alternatives.

12 Barry, Brian. 2003. Sustainability and Intergenerational Justice. In Environmental Ethics: An Anthology. Blackwell Publishing. Pgs. 487-489. 13 Davidson, Marc D. 2008. Wrongful Harm to Future Generations: The Case of Climate Change. Environmental Values 17: 471-488. 14 Gondek, Adela J. 2008. Lectures 11-12. 15 Gondek, Adela J. 2008. Lectures 3 and 8. 16 Rolston III, Holmes. 2003. Value in Nature and the Nature of Value. In Environmental Ethics: An Anthology. Blackwell Publishing. Pgs. 143-147.

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D.

ExxonMobil’s Stance ExxonMobil has traditionally been skeptical of climate science. It wasn’t until recently that the company decided to accept that climate change is largely attributed to human activity and that something must be done about it.17 In 2005, a survey conducted by the UK’s Royal Society determined that ExxonMobil had contributed roughly $22.9 million to nearly 40 groups that worked to misinterpret the science behind climate change to confuse the public and prevent government action. In fact, it is largely believed in the non-profit sector that ExxonMobil has funded a “climate denial industry” over the last decade. Although the company decided to cut investments in many groups, it continues to fund several key groups that undermine climate science.18 Despite ExxonMobil’s new stance on climate change, it continues to treat it as another global issue to consider rather than an urgent emergency that needs to be addressed quickly and aggressively. In fact, while competitors invest more in alternative energies, ExxonMobil continues to believe that petroleum will be a significant energy source well into the future.19 This stance is unethical because of the known consequences climate change threatens to pose and because ExxonMobil is one of the best well-positioned companies to lead the world with technological solutions that can improve lives. ExxonMobil’s time for action is now.

ExxonMobil. 2008. Pgs 1-10. Adam, David. 2008. Exxon to cut funding to climate change denial groups. The Guardian. http://www.guardian.co.uk/environment/2008/may/28/climatechange.fossilfuels. 19 Baue, Bill. 2006. BP, Suncor, and Shell Top Oil Sector Sustainability Rating; Chevron and ExxonMobil Rank Low. Social Funds. http://www.socialfunds.com/news/article.cgi/2072.html.
17 18

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3.
A.

An Action Plan: Responding to Climate Change
If there is one well-known fact regarding what may influence ExxonMobil’s future viability, it is the end of the carbon era. The world has largely come to a consensus that it must substantially reduce carbon dioxide emissions to prevent the worst consequences of climate change.20 In effect, this means that petroleum combustion will likely be curtailed significantly this century as a result of government action to fight climate change. Regardless of what strategy is used to address the challenge, ExxonMobil will have to reinvent its business to remain one of the world’s most significant companies and ensure its viability. Furthermore, it will have to adopt a strategy in which it not only reduces the carbon dioxide emissions it produces, but also provides the technologies that will lead the world towards decarbonization. Given that carbon dioxide emissions will have to come down dramatically, the best path for ExxonMobil is to capitalize on existing alternative technologies that are emissions-free and can be scalable. This will mean entering new markets while maintaining its mission of providing reliable energy to the world and improving its tarnished image.

The End of the Carbon Era

20

Associated Press. U.N. climate chief hails Obama commitments. 19 November 2008. http://www.msnbc.msn.com/id/27810959/.

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B.

A New Business Path: Renewable Energy and Sustainable Transportation

ExxonMobil has the unique opportunity to capitalize on its investment capacity to gradually shift investments from petroleum and gas to renewable energy and energy efficiency technologies, both for the electricity and transportation sectors. Under a 10year strategic investment plan, the company can shift its total annual investments from petroleum and gas to renewable energy and energy efficiency technologies, as well as sustainable modes of transportation, such as rail, train, buses, and even highly energy efficient personal vehicles. This will not only enable the company to seize the opportunity at hand, but it will ensure the company’s future viability under a carbonconstrained world. Under this plan, ExxonMobil should take advantage of all business strategies for market entry, including leveraged buyouts and investments in university research. It should seek to attract the best researchers and market its new strategy to gain government and public support. It should also continue to lobby the government, only that under this plan it will be regarding the government provision of funding and incentives for renewable energy, energy efficiency, and sustainable transportation. With strong government and public support, ExxonMobil can develop new technologies that will transform the way the world gets and uses energy. From an ethical standpoint, it will be a way of respecting the “rights” of certain humans and all other species. This strategy will enable ExxonMobil to address climate change ethically by reducing the extent to which future impacts will impair human rights and the rights of Page 12 of 16

other species on Earth. This “[greening]” of human rights addresses both environmental degradation and social deterioration.21 On one hand, this new strategy will create innovative technologies that will de-carbonize the world. On the other, it will create millions of jobs globally, reduce climate change impacts, enhance projected natural resources availability, and promote healthier and better lifestyles. In this way, ExxonMobil will be known as a company that capitalized on a great opportunity offered by a global emergency to take the world on a different path. Finally, working with governments and other competitors to mitigate climate change will avoid future conflicts that will save lives and create new business opportunities for ExxonMobil. While it is largely assumed that coordination alone among governments will lead to conflict,22 ExxonMobil can demonstrate that this does not have to necessarily be the case. By fully entering the carbon-mitigating market, it will force other competitors to also heavily invest in this new market, freeing up government resources that can instead be used to socially protect those most impacted by climate change. In this way, the “rights” of other people can be better protected in the future, allowing people’s quality of life to improve and a new sustainable economic order to take place, where people’s decisions play a more important role.23

21 Nickel, James W. and Viola, Eduardo. 2003. Integrating Environmentalism and Human Rights. In Environmental Ethics: An Anthology. Blackwell Publishing. Pgs. 474-476. 22 Kamminga, Menno R. 2008. The ethics of climate politics: four modes of moral discourse. Environmental Politics 17 (4): 673-692. 23 Cobb Jr., John B. 2003. Toward a Just and Sustainable Economic Order. In Environmental Ethics: An Anthology. Blackwell Publishing. Pgs. 365-368.

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C.

Diversification Strategies

In order to implement this strategy, ExxonMobil will have to analyze the existing carbon-mitigating markets to understand what entry options exist. This will entail designing entry options based on market size, technological improvement potential, and competition. The table below provides recommended strategies for each of these categories.

Category
Market Size

Strategy
1. Purchase largest businesses if market size is small. 2. Purchase cutting edge businesses if market size is large. 1. Heavily invest in research and development at universities. 2. Transform existing research operations to focus heavily on carbon-free technologies. 3. Heavily invest in start-ups with innovative technologies and great cost-reduction potential. 1. Establish joint ventures with leading businesses by providing substantial funding for growth. 2. Strive to dominate emerging markets, whether small or large.

Technological Improvement Potential

Competition

In many cases, the company will have to adopt a mix of these strategies in order to competitively enter a market. For example, the solar photovoltaic industry is relatively small, yet competition is very strong, so that ExxonMobil will have to combine buying large businesses while establishing ventures and entering as many emerging markets as possible. These strategies are designed to enable the company to rapidly enter the existing markets and maximize its investments. With such strategies, ExxonMobil will be able to enter a new, bright period in the company’s history, eliminating the immoral image it currently has and creating a more prosperous world. Page 14 of 16

4.

Conclusions
Climate change poses significant challenges to the world as it threatens to widen inequalities and impact non-human living systems. The ethics of climate change involve the interference with the rights of humans and non-human living things, particularly in relation to access to natural resources critical to survival. It also involves questions related to whether we should leave a place to live for future generations that is better or worse than what it currently is. The combustion of petroleum products therefore creates a problem for ExxonMobil as it cannot meet its goals of improving the lives of millions of people with energy provision as that same provision unintentionally destroys lives. ExxonMobil’s stance on climate change has been unethical for far too long, and it is fair that the company is now beginning to change its view on climate change. However, ExxonMobil must make a turn as one of the world’s most well-known companies by accepting the fact that the age of carbon emissions is over. Moreover, it must embrace the opportunity the challenge of de-carbonizing the world presents by implementing a 10-year plan under which it will enter and eventually lead new markets that will supply energy with carbon-free and sustainable technologies. Under this plan, the company will adopt strategies that will not only maximize its future financial viability, but that will also improve millions of lives and make itself the most wellrespected company in the world. The time is now to show global leadership.

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5.

References
Adam, David. 2008. Exxon to cut funding to climate change denial groups. The Guardian. http://www.guardian.co.uk/environment/2008/may/28/climatechange.fossilfuels. Associated Press. U.N. climate chief hails Obama commitments. 19 November 2008. http://www.msnbc.msn.com/id/27810959/. Baue, Bill. 2006. BP, Suncor, and Shell Top Oil Sector Sustainability Rating; Chevron and ExxonMobil Rank Low. Social Funds. http://www.socialfunds.com/news/article.cgi/2072.html. Barry, Brian. 2003. Sustainability and Intergenerational Justice. In Environmental Ethics: An Anthology. Blackwell Publishing. Cobb Jr., John B. 2003. Toward a Just and Sustainable Economic Order. In Environmental Ethics: An Anthology. Blackwell Publishing. Davidson, Marc D. 2008. Wrongful Harm to Future Generations: The Case of Climate Change. Environmental Values 17: 471-488. ExxonMobil. 2008. 2007 Corporate Citizenship http://www.exxonmobil.com/Corporate/files/Corporate/community_ccr_2007.pdf. Report.

Gondek, Adela J. 2008. Class Notes for Ethics, Values, and Justice. Columbia University. Lectures 1, 2, 3, 4, 8, 11, 12. Intergovernmental Panel on Climate Change. 2007. Climate Change: Synthesis Report. UNFCCC. Jamieson, Dale. 2003. Ethics, Public Policy, and Global Warming. In Environmental Ethics: An Anthology. Blackwell Publishing. Kamminga, Menno R. 2008. The ethics of climate politics: four modes of moral discourse. Environmental Politics 17 (4): 673-692. Nickel, James W. and Viola, Eduardo. 2003. Integrating Environmentalism and Human Rights. In Environmental Ethics: An Anthology. Blackwell Publishing. Rolston III, Holmes. 2003. Value in Nature and the Nature of Value. In Environmental Ethics: An Anthology. Blackwell Publishing. Stern, Nicholas. 2006. The Stern Review on the Economics of Climate Change. UK Treasury.

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