{"id":22691,"date":"2017-11-14T18:52:40","date_gmt":"2017-11-14T23:52:40","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/exx-on-exx-off-how-global-climate-change-could-wipe-away-exxonmobils-profits\/"},"modified":"2017-11-14T18:56:23","modified_gmt":"2017-11-14T23:56:23","slug":"exx-on-exx-off-how-global-climate-change-could-wipe-away-big-oils-profits","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/exx-on-exx-off-how-global-climate-change-could-wipe-away-big-oils-profits\/","title":{"rendered":"Exx-on, Exx-off: How Global Climate Change Could Wipe Away Big Oil\u2019s Profits"},"content":{"rendered":"

ExxonMobil being connected to global climate change will surprise no one.\u00a0 Though generally, the connection is seen as one of cause (Exxon) and effect (global climate change) with society being the victim.\u00a0 While it is unclear to me if more guilt should be attached to the producers, or to those who pay the producers, it is evident that both society and corporations will be negatively affected by climate change\u2019s impacts.\u00a0 Ironically, the impacts of global climate change will have an extremely negative impact on ExxonMobil\u2019s ability to profitably produce oil.\u00a0 The corporate impacts of climate change have been categorized as Physical (e.g. damage to infrastructure), Prices (e.g. cost of infrastructure), Product (e.g. loss of demand), Ratings (e.g. cost of capital), Reputation (direct or indirect), and Regulation (governmental)1<\/sup>.\u00a0 In addition to Reputational risk, ExxonMobil and its supply chain will be greatly affect by a large Physical risk.<\/p>\n

The physical risks are incredibly diverse as a result of lengthy oil and gas supply chain.\u00a0 A significant portion of ExxonMobil\u2019s oil production is offshore.\u00a0 These production facilities will be under increased threat of changes to Hurricane activity that result from climate change2<\/sup>.\u00a0 In addition, even pipelines are feeling the strain.\u00a0 Pipelines in Alaska have needed numerous modifications to avoid sinking into the melting permafrost3<\/sup>. Most crude oil inputs are shipped from international locations with lengthy loading, transit, and discharge times will be heavily influenced by changing weather patterns and sea levels. Refineries are generally close to the water and operations will be greatly influenced by weather patterns2<\/sup>, freshwater availability4<\/sup>, and sea level rise5<\/sup>.<\/p>\n

 <\/p>\n

Fighting Climate Change: Courage and Contradiction<\/strong><\/p>\n

 <\/p>\n

Attempts to limit the impact of climate change can be broadly clumped into two categories: those that seek to prevent climate change from occurring and those that attempt to mitigate the impacts of climate change.\u00a0 ExxonMobil has made some limited strides to preventing global climate change from occurring.\u00a0 In the past few decades the company has moved from discrediting the science of climate change6<\/sup> to admitting that climate change exists and pushing for a more rigorous carbon tax7<\/sup>.\u00a0 As well, Exxon has created a dedicated Environmental Engineering team that is working to decrease methane emissions from pipelines8<\/sup>.\u00a0 This being said, far more of Exxon\u2019s actions are reactive instead of proactive.<\/p>\n

The effort to decrease methane came years after awareness of the damage of methane in the atmosphere.\u00a0 Instead of waiting till problems manifest and then trying to solve the emergent issues, ExxonMobil should work to institutionalize environmental findings and best practices.\u00a0 Unfortunately, the actions of the ExxonMobil Political Action Committee (PAC) seem to contradict the evolving environmental focus of the corporation.\u00a0 Last year the PAC contributed to efforts to decrease the ability of counties to implement legislation affecting fracking9<\/sup>.<\/p>\n

 <\/p>\n

Supply Change Impacts:\u00a0 Sailing Ships and Sinking Pipes<\/strong><\/p>\n

 <\/p>\n

In addition to attempting to limit the severity of global climate change, ExxonMobil needs to make increased efforts to mitigate the impacts of climate change.\u00a0 Exxon has made some limited short-term efforts to decrease its supply chain exposure.\u00a0 In the U.S. they have decreased their dependence on foreign oil which greatly simplifies the supply chain.\u00a0 Domestic crudes are generally transferred via pipeline which avoid many of the potential delays associated with shipping (with the exception of the Alaskan pipelines2<\/sup>).<\/p>\n

ExxonMobil\u2019s limited preparation will not be enough to mitigate the impact global climate change still poses.\u00a0 Focusing on the U.S. Gulf Coast (where ExxonMobil refining is primarily focused), the company has done little to improve outdated infrastructure.\u00a0 This has, and will, result in refinery disruptions10<\/sup>, particularly in extreme weather events.\u00a0 In an effort to decrease capital expenditures, Exxon has also limited its crude oil and product storage capabilities.\u00a0 Even in the absence of flooding or weather events this has led to a decreased refinery throughput in certain events. This refinery underutilization will only become more pronounced as climate change progresses, particularly as climate change puts strain on pipelines and shipping.\u00a0 Just as with the Alaskan pipeline, Exxon\u2019s efforts have been more reactive than proactive in nature.<\/p>\n

 <\/p>\n

Will The Climate Change Exxon?<\/strong><\/p>\n

 <\/p>\n

While ExxonMobil has evolved over the years to become increasingly involved in the climate change discussion, it still has work to do.\u00a0 The company characteristically underestimates the impact that climate change will have on its own operations.\u00a0 Ironically, the corporation\u2019s risk averse culture (in no small part a result of the Valdez) limits its ability to spend capital to prevent future disruptions.\u00a0 Many questions remain.\u00a0 How much do you impact current profitability to prevent possible future disruptions?\u00a0 And is it the responsibility of governments or markets to remove negative externalities?<\/p>\n

(763 words)<\/p>\n

 <\/p>\n

    \n
  1. https:\/\/www.mckinsey.com\/business-functions\/sustainability-and-resource-productivity\/our-insights\/how-companies-can-adapt-to-climate-change<\/a><\/li>\n
  2. Risky Business Project, Risky Business: The Economic Risks of Climate Change in the United States <\/em>\u2028(2014)<\/li>\n
  3. http:\/\/articles.latimes.com\/1987-06-14\/news\/mn-7184_1_trans-alaska-pipeline<\/a><\/li>\n
  4. United Nations Environmental Programme, GEO-5 for Business: Impacts of a Changing <\/em>\u2028Environment on the Corporate Sector <\/em>(2013)<\/li>\n
  5. Gledhill, R., D. Hamza-Goodacre, and L. Ping Low, \u201cBusiness-not-as-usual: Tackling the impact of climate change on supply chain risk,\u201d PWC – Resilience: A Journal of Strategy and Risk <\/em>(2013)<\/li>\n
  6. https:\/\/www.nytimes.com\/2017\/08\/22\/opinion\/exxon-climate-change-.html<\/a><\/li>\n
  7. http:\/\/fortune.com\/2016\/07\/10\/exxonmobil-carbon-tax\/<\/a><\/li>\n
  8. https:\/\/www.nytimes.com\/2017\/09\/25\/business\/energy-environment\/exxon-methane-leaks.html<\/a><\/li>\n
  9. http:\/\/cdn.exxonmobil.com\/~\/media\/global\/files\/politcal-contributions\/1q16-ld-2-disclosure-form.pdf<\/a><\/li>\n
  10. http:\/\/www.latimes.com\/business\/la-fi-exxon-mobil-refinery-20170502-story.html<\/a><\/li>\n<\/ol>\n","protected":false},"excerpt":{"rendered":"

    The connection of ExxonMobil to climate change is more than just causal. 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