PETROANALYSIS || ARTICLE
Lawsuit against ExxonMobil: compromises oil industry future
The recent report of the United Nations Climate Panel (IPCC) reveals the urgency of the extraordinary measures that governments, companies and families must carry out in their patterns of energy consumption in order to avoid the fact that in twelve years the emission of more greenhouse gases to the atmosphere will raise the average temperature of the planet more rapidly and make daily life more precarious for large sectors of the population, especially, those living in very vulnerable places, such as coastal cities and islands with few natural defences.
A very critical and sensitive reading of the IPCC report concludes that, sooner rather than later, public policies demanded by an electorate will be approved, a clear awareness of the need to force changes in energy consumption patterns imposed by a more ambitious route of decarbonisation – implying, for example, negative emissions through the capture of carbon from the air.
A possible framework of coercion promoted or imposed by governments cannot be disregarded by oil and gas companies, because in practice both governmental actors at different levels as well as private sector and non-governmental organizations (NGOs) have been making decisions that define actions in favour of a full and more timely decarbonization, counteracting the lobbying and counterattacks of groups that oppose a transformation of the dominant pattern of energy consumption.
It is not strange that in the face of the urgency of doing something that prevents a greater and dangerous climate deterioration, some analysts propose a kind of nuclear proliferation treaty that in the climatic field makes the drawing of a line that discourages the emission of greenhouse gases possible and hurries the decisions in favour of decarbonisation by political leaders. This treaty should try to impose a moratorium on rich countries for any further expansion of the fossil fuel industry, or any infrastructure that depends on it.
For some analysts, the IPCC report is going to allow better arguments in the courts in which lawsuits by citizens and states are filed against the oil companies to which they attribute great blame for the adverse effects caused by the climatic conditions of the planet due to the emission of greenhouse gases, especially carbon dioxide and methane. It would not be surprising, either, to think that these demands would be joined by more NGOs and public entities given the forcefulness of the scientific facts shown by the IPCC report.
In this sense, the lawsuit filed this week by the Attorney General of the State of New York against ExxonMobil is very emblematic of what has been discussed above. The state of New York began investigating Exxon three years ago, on the theory that the company was hiding evidence of how fossil fuels were contributing to climate change.
According to the prosecution’s accusation, ExxonMobil defrauded the shareholders, including those of the state workers’ pension fund, by not incorporating the projected costs of future climate regulation into their planning and investment decisions. That is, there was inconsistency in the messages transmitted publicly by the oil company and what internally he had been doing to value its projects.
The lawsuit alleges that Exxon over the years made it clear that it was taking into account risks such as increased carbon taxes and other regulatory measures aimed at reducing oil demand and combating climate change. Supposedly, that version was made to investors, but in the internal evaluations of their projects, it used much lower estimates of those risks, called proxy costs.
This double standard could affect up to a quarter of the value of its oil assets, which can be a deception for the holders of the company’s shares.
ExxonMobil has dramatically underestimated the risks its oil assets face due to efforts to reduce carbon emissions. This accusation addressed to ExxonMobil could fit in with similar ones in the area, in particular to the companies that resist to transform and leave behind their concentration in fossil fuel production.
It is worth mentioning that ExxonMobil minimizes an energy future with a dominant presence of energies of non-fossil origin that affects the backbone of its business, and this fits with what was referred to by the lawsuit of the State of New York. This can be seen in the report of ExxonMobil when considering perspectives 2018-2040, and in which in a scenario based on a theoretical increase of 2ºC in the average temperature of the planet, the company does not exclude the possibility of commercially exploiting its reserves, that is to say, the dominant scenario is “business as usual”.
This lawsuit by the New York State Attorney’s Office may expose ExxonMobil, and possibly other oil and gas companies, to class action lawsuits as shareholders incorporate a theory of long-term damage into their calculations. The financial consequences for the oil companies would not be expected since the calculations of the ExxonMobil reserve, and by extension of all the companies of the area, duly explained, would show much smaller companies with a significantly diminished long-term perspective.