Exxon versus Clean Energy

Environmentalists have long been pushing for a transition from fossil fuels to clean and renewable energies. Elon Musk, CEO of Tesla and SpaceX, has said that people are running “the dumbest experiment in history” by continuing to burn oil, coal and gas. He argues that even if we find new ways to extract oil in tar sands or in the ocean, fossil fuel must come to an end either when they have done too much damage to the earth or when their supplies inevitably run dry. Big oil companies, such as British Petroleum, Chevron and ExxonMobil, think that they have heard the message loud and clear. But have they?

With President Donald Trump in office, the United States is projected to change direction from the Obama Administration’s push for solar and wind energy to a focus on strong national oil production. A cursory search through most news outlets would paint the picture that the ancient oil magnates are not adapting to the renewable revolution and that only the exciting, technology-based companies of the future pioneer innovative energy solutions. There is a clear gap in the news that is reported. This is leaving many wondering if there are any startups that are making an impact in petrochemicals or, more importantly, if these oil magnates are doing any work to adapt to the changing energy landscape.

Ancient oil magnates are not adapting to the renewable revolution.

Even though BP, Chevron and Exxon continue to generate most of their revenue from nonrenewable sources, all three have put effort into research and investment in various forms of renewable energy. While these companies recognize the unsustainability of oil in the long-run, as an overview of their clean energy capabilities will make clear, they are not doing nearly enough to transition their own business models to account for the advent and feasibility of cleaner fuel alternatives.

In terms of renewable capabilities, BP, the world’s sixth-largest oil company, used to be one of the world’s leading solar energy companies. BP Solar, its solar subsidiary founded in 1981, had been the largest solar panel manufacturer in the world for over a decade, according to Forbes. After a 40-year run, however, BP Solar was unable to compete in the tough market and then closed in December 2011. This was accompanied by an announcement that BP would not continue to pursue ventures in solar energy.

Even with a troubled green past, BP’s renewable energy interests currently focus on biofuels and onshore wind. In 2015, BP used sugar cane to produce five million barrels of ethanol equivalent of biofuels, which seems like a sizeable amount but is, in reality, a little less than half a percent of the amount of oil it produces each year. In addition, BP holds interests in 16 onshore wind farms in the U.S., which could provide enough power for all the homes in a city the size of Dallas and save 2.7 million tons of carbon dioxide annually. With these two investments, BP has one of the largest renewable energy businesses among the oil giants. Yet, BP continues to produce more than 3.3 million barrels a day (which equates to over one trillion barrels of oil annually), and the sum of BP’s renewable efforts pale in comparison to their nonrenewable capabilities. Without a doubt the message has been heard loud and clear: “Yeah, right!”

What is more unsettling is that BP is the exception, not the rule. Chevron, the world’s ninth-largest oil company, is much more like the norm. While it has more diverse investments in renewable energy, it does not have the depth of capability that BP has established. In 2011, Chevron said it was aiming to be one of the world’s leading producers in geothermal energy, heat energy generated by and stored in the Earth. With projects in Indonesia and the Philippines, Chevron uses geothermal energy to “meet the needs of millions of people,” while saving more than 650,000 metric tons of carbon dioxide emissions annually. The company has also assisted in the development of a geothermal power plant in the Salton Sea of California, which is estimated to have a 49.9-megawatt capacity. Additionally, Chevron has money in two solar energy projects in New Mexico and California, one wind farm in Wyoming, and research interests in sugar-based biofuels. Regardless of its myriad renewable capabilities, Chevron’s carbon dioxide savings from geothermal, solar and wind energy are insignificant.

While most oil companies are at least embracing the clean energy revolution, ExxonMobil has a different outlook. ExxonMobil’s main initiative for renewable energy stems from its “Outlook for Energy” project, which studies energy demand and supply and helps ensure that “the world has access to affordable and reliable energy supplies while reducing emissions to address the risk of climate change.” The explicit exclusion of whether the energy is renewable or not is no mistake. Exxon predicts that in 2040, oil will still comprise 32 percent of the world’s energy, and that natural gas, which emits less carbon dioxide than oil, will make up 25 percent of the world’s energy. Reflecting these insights, ExxonMobil has made a big bet on natural gas with XTO Energy Inc., a natural gas company it acquired in 2010. According to Forbes, ExxonMobil produced 9.8 billion cubic feet per day of natural gas in 2016, making it the second largest natural gas producer in the world. As for other investments in renewable energy, ExxonMobil funds research in algae and cellulosic biofuels, which they hope to one day deliver due to their environmental benefits. With this sole research investment, ExxonMobil has fewer renewable energy interests than the rest of the industry.

Although BP, Chevron and ExxonMobil all have some renewable energy capabilities, it seems that their primary focus remains on oil with only minor preparations for the eventual clean energy revolution. These companies have and will continue to pale in comparison to new environmental companies that are all-in on green energy. Even with BP, which once had a large share of the solar energy market, the trend seems to be that oil companies fail at producing large amounts of renewable energy in the long-run and that their stints in cleaner forms of energy may be more for marketing purposes than for real transitions into diverse energy businesses. There is no reason to take energy out of your portfolio just yet — the oil giants still tower over the developing green energy companies. However, it seems that even with large capital reserves and expert engineers, big oil giants cannot and will not be the leading renewable energy companies of the future.

As part of a new initiative between the Harvard Economics Review and the Dartmouth Business Journal, we will regularly showcase a selection of the Dartmouth Business Journal’s articles on our website. We hope you enjoy “Will Exxon Ever Become a Clean Energy Company?” by Jason as much as we did!

Leave a Reply

Your email address will not be published. Required fields are marked *