Exxon Shareholder Revolt Is Latest Credibility Test For Big Energy CEOs


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The recent success of the No.1 engine proxy combat with

Exxon Mobil

drew new attention to the public role of the CEO of energy. Exxon’s Darren Woods has made a personal effort against the militants’ proposed roster of directors, only to see three of their nominees join its board. Commentators were quick to attribute the result to a “Tin ear”.

In reality, the challenge for energy CEOs goes far beyond communications. The real challenges of the transition to a low-carbon energy future remain largely obscured. One question is how CEOs can bring these issues to the surface so that a substantive discussion can take place. A second concern is how to do it without it being seen as public relations or greenwashing. Do the CEO and the company take the challenge of energy transition seriously? Are they prepared to invest capital and take risks in finding solutions? It is only when this test of credibility is satisfied that the prospects for dialogue on the outstanding issues will improve.

What are these issues? First, are the solutions touted by climate activists, such as wind and solar power and battery storage, really adequate to achieve the goals? Second, what collateral damage are we prepared to accept in pursuing the transition goals? These can include higher energy costs, grid instability, geopolitical consequences, lifestyle changes and slower economic growth. Third, what compromises are climate activists prepared to make to provide industry and governments with more feasible and less costly transition paths?

To illustrate the third problem, are climate activists prepared to support long-distance transmission lines or pipelines to transport carbon dioxide? Oklahoma wind power could be economical in North Carolina, but it would require new power lines in four states. The technology exists to capture CO2 in natural gas power plants that ensure grid reliability, but the use or storage of this CO2 probably involves transporting it to the Gulf Coast. Shifting the discussion to such issues with enough credibility to facilitate negotiations with various stakeholders is now central to the public role of CEOs.

A number of Exxon shareholders apparently did not find its board or messages to be fully credible. Some other companies in the industry have made more effective efforts to align their messaging and investments. A map published through

Duke Energy

last year, “Achieving a Net Zero Carbon Future” laid out many issues she will want to negotiate with activists and regulators on.

To achieve net zero emissions by 2050, Duke needs to increase its power generation fleet from the current 58 gigawatts to 105 GW. Some of this growth will meet higher demand as the economy becomes electrified. A good deal is to replace large-capacity electricity generation, such as coal-fired power plants, with intermittent generation. Adding renewables, even with battery storage, does not compensate for shutting down fossil fuels or nuclear capacity. Even after building 40 GW of wind and solar power, Duke will need to expand its existing nuclear fleet and keep a considerable amount of natural gas in the mix. Finally, there is 13 GW of je ne sais quoi in the resource plan. Duke called them “zero emissions, resource load,” or Zelfrs. Small modular nuclear reactors and carbon capture were mentioned as possible solutions.

This reality-checking exercise raises many questions for debate. What would be the required capital? How much will it cost and what prices for electricity would be needed to achieve it? What consequences does this have on other issues, such as the competitiveness of the North Carolina economy? Will the Zelfr materialize? Would a less aggressive decarbonization by Duke provide a better overall solution? Duke has yet to provide his answers to these questions. But now there is a framework in which to discuss them. This type of holistic framework allows CEOs to present the difficult realities they face and discuss them with shareholders, investors and society.

Oil and gas companies face a more difficult credibility challenge. Their business seems more directly threatened and it is more difficult for them to see new business opportunities that promise attractive returns.

A credibility test will involve sequestration / use of carbon capture. Developed on a large scale, it could preserve much of the energy infrastructure and be useful in the developing world, where there are fewer transition options. But for that to emerge, oil and gas CEOs are going to have to go beyond the simple message. They’re going to have to prove they have capture technology and invest the money to show that it works at scale and can be deployed in certain places where, with the current incentives, it can reward investors. Creating on-the-ground facts like these would better position fossil fuel CEOs to address other issues that they believe should not remain overwhelmed.

Over time, the transition will require all energy CEOs to address the underlying issues in their industry or face the challenges of investors and the public. For example, at some point, CEOs of renewable companies will be called upon to address the “all-in costs” of renewables, the natural limits of their growth and the add-ons needed for their deployment. The sooner all energy CEOs can integrate their messages into their action plans to address such complex challenges, the sooner we can achieve an affordable transition that mitigates severe climate risks.

Stephen Arbogast heads the Energy Center at the Kenan-Flagler Business School at UNC-Chapel Hill. He worked at Exxon from 1972 to 2004.

E-mail: [email protected]


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